NITI Aayog vice-chairman Rajiv Kumar (Ramesh Pathania/Mint file)
NITI Aayog vice-chairman Rajiv Kumar (Ramesh Pathania/Mint file)

Corporate tax cut to have 'minor' impact on fiscal deficit: Niti Aayog

  • 'I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which will be minor'
  • The budget had estimated fiscal deficit at 3.3% of GDP for the current fiscal year

Mumbai: The 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the shortfall will be met through increased tax collection due to higher growth that the massive tax cuts are expected to achieve, Niti Aayog vice-chairman Rajiv Kumar said on Saturday.

On Friday, the government had announced tax cuts for corporates by 10-12 percentage points, bringing down the effective corporate tax to 25.17% inclusive of all cess and surcharges for domestic companies. The new tax rate will be applicable from 1 April, involving a revenue loss of 1.45 lakh crore in the current fiscal year.

"I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which will be minor," Kumar said at an India Today event. The budget had estimated fiscal deficit at 3.3% of GDP for the current fiscal year, but many analysts have pegged it overshooting by at least 70 bps to 4.1% as the quantum of the giveaways is worth 0.7% of GDP.

Significantly, it can be noted that neither the finance minister or her senior cabinet colleagues who talked to the media after the announcement took questions on the shape of fiscal deficit numbers post the tax cuts. Even, Reserve Bank of India governor Shaktikanta Das had lapped it up as growth boosting just a day before warning the government that it has no leeway to undertake any fiscally expansionary measures.

It can be noted that while the GST collection has been ebbing below the desired 1 lakh crore mark all through the year expect one month, the direct tax mop-up for the first half lagged way behind the target. It grew a 4.7% in H1 of this fiscal at 5.5 lakh crore against a budgeted target of 17.5% growth in collections for the full year.

Kumar said direct and indirect tax revenues are expected to go up with growth picking up after these tax cuts. "There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore, both direct and in direct tax collections will go up with growth," he said.

Kumar said another area for his optimism is the government's focus on divestment, which he budgeted at 1.05 lakh crore. "Asset sales will yield an additional 52,000 crore over the budget estimate. Then you have got another 50,000 crore from the RBI that was not included in the Budget," he said.

The higher revenue from tax and non-tax fronts will help the government finance the fiscal deficit, he added.

Kumar said 5% GDP growth is not yet a crisis and the first quarter number marks the bottoming out of the cycle."We will achieve a nearly 6.5% growth this year and we will be on track for doubling up our per capita income in the next five years," he added.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed

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