New Delhi: The government may fail to meet revenue collection targets putting at risk its plan to reduce the nation’s fiscal deficit as the pace of economic growth slows in the world’s second fastest growing major economy.
“Meeting revenue collection targets in 2011-12 will not be an easy task to accomplish,” finance secretary Sunil Mitra said.
“While the economy is expected to grow at 8.5% this year, indirect tax revenue will need to grow at 14.8% to meet the budget estimates of Rs 3.98 trillion for 2011-12, Moreover, the impact of the higher base effect will only compound this,” he said.
Finance minister Pranab Mukherjee had forecast a 9% economic growth when he presented the Union budget in February for the current fiscal year.
The Central government is targeting Rs 6.64 trillion in tax revenue in the current fiscal, according to the budget. It has projected a fiscal deficit of 4.6% of the gross domestic product (GDP), compared with 4.7% in the previous year.
Mukherjee, in a 7 June meeting with large investors, had allayed fears of high fiscal deficit by saying revenue collection is likely to achieve the current year’s budget estimates.
But S.D. Majumder, chairman, Central Board of Excise and Customs (CBEC), said indirect tax collection may fall short of target in 2011-12 because of slow economic growth.
“Due to various factors, domestic as well as international, the current financial year is going to be a challenging one,” Majumder said. “Besides our dependence on growth in services and manufacturing sector, the impact of increased base effect will make our achieving of the target of Rs 3.98 lakh crore (trillion) a difficult one.”
Total indirect tax collections in 2010-11 were Rs 3.43 trillion, more than the the revised estimate of Rs 3.35 trillion.
Majumder said the 2011-12 target may be revised. “We may need to review it in a few months to see if any mid-course revision is required.”
Net direct tax collection has also fallen in the first two months of this fiscal year, mainly because of higher refunds to taxpayers.
Though gross direct tax collection rose 37% to Rs 50,405 crore compared with a year earlier, net direct tax collection fell 48% in the period.
Bipin Sapra, tax partner at the audit and consulting firm Ernst and Young, said it is a little early to predict a slowdown in tax collections.
“There are indications that growth in the economy may be slowing down. But we will have to wait and see what could be the impact on revenue collections,” he said. “But if tax collections do slow down, the government will find it difficult to meet the fiscal deficit target as there are no visible alternative revenue sources.”