The Budget expects the robust growth in tax receipts seen over the last three years to continue and has estimated tax receipts next fiscal would grow 24% on year to reach Rs5,48,122 crore.
The Budget estimates of tax receipts for 2007-08 is based on the assumption gross domestic product (at current prices) during the year would grow by 13% to touch Rs 46,33,719 crore. Strong economic growth has been the primary reason for the buoyancy in tax revenue in the recent past.
The tax proposals in the Budget would be revenue neutral in the case of indirect taxes and add Rs3,000 crore in the case of direct taxes, said a senior official of the finance ministry who didn’t want to be named. Most of the remaining growth in tax revenue is expected to come from economic growth.
A spin-off of the tax buoyancy is that finance minister P. Chidambaram announced the government was on course to meeting its deficit targets manadated by legislation. Revenue deficit, which should be wiped out end-March 2009, is estimated to be 1.5% of GDP by the end of 2007-08.
The growth in tax revenue has been driven by the buoyancy in corporation tax collections. Corporation tax is set to overtake excise duty as the single biggest contributor to tax revenue in the current financial year. The trend is expected to continue next year, with corporation tax collections estimated to reach Rs1,68,401 crore, a growth of 27% on year over last year’s budget estimates.
Union excise duties, in contrast, is estimated to grow 9.4% on year to Rs1,30,220 crore by the end of March 2008.
Service tax, a part of indirect taxes, has seen fast-paced growth and increased its share in total tax revenue. It’s estimated to grow 46% on year to Rs50,200 crore by the end of March 2008 even as the list of assesses has been pruned. The pruning is expected to lead to a loss of Rs800 crore.