The shortfall in FY19 means I-T dept will have to achieve a 23% growth to meet the target of  ₹13.8 trillion this fiscal.
The shortfall in FY19 means I-T dept will have to achieve a 23% growth to meet the target of 13.8 trillion this fiscal.

Slowing direct tax collections may push govt to reset its budget math for FY20

  • The shortfall in direct tax receipts in the previous fiscal makes projections for the current year ambitious
  • The challenge of meeting the tax collection target comes in the wake of various agencies revising down economic growth rate projections for the current fiscal

NEW DELHI : Slowing tax collections may prompt India to cut its FY20 direct taxes target from the 13.8 trillion estimated in the interim budget, necessitating a reworking of the contours of the full budget to be presented after the elections.

The shortfall in direct tax receipts in the just-concluded FY19 makes projections for the current fiscal ambitious, a person with direct knowledge of tax receipts said on condition of anonymity. The revenue department collected close to 11.2 trillion in FY19 by way of taxes on personal and corporate income, which is an improvement of 12% over what was collected in the year before. The achievement still fell short of the 12 trillion the finance ministry had hoped to mop up by March as it revised the target upwards while presenting the interim budget for FY20 in February.

This shortfall in FY19 means the income tax department will have to achieve a 23% growth to meet the target of 13.8 trillion this fiscal, a daunting task, the person cited above said.

The target appears challenging because such growth was never seen in the last 10 years. Direct tax receipts had grown at 18%, its fastest pace in 10 years in both FY11 and in FY18, according to data available with the tax department.

The challenge of meeting the tax collection target comes in the wake of various agencies revising down economic growth rate projections for the current fiscal. Citing slowing global economic growth, Reserve Bank of India in its first bimonthly monetary policy in April lowered its forecast to 7.2% growth for FY20 from 7.4% estimated in February.

A downward revision in direct tax target for FY20 could have implications for the full-year spending and fiscal deficit too. In February, then finance minister Piyush Goyal had proposed a 13% jump in total government spending in FY20 to 27.8 trillion in the interim budget, in which he also announced income support for small and marginal farmers—Pradhan Mantri Kisan Samman Nidhi—for which 75,000 crore is earmarked for the this year.

Deviating from the fiscal glide path, the budget had also estimated a 3.4% fiscal deficit for the current fiscal, same as the upwardly revised estimate for FY19 from the earlier projected 3.3%. Experts said that the final fiscal deficit figure for FY19 will possibly inch up to 4% once government accounts for the year are final. For the current financial year, the nominal GDP estimation as well as revenue and expenditure projections have to be revised down.

“For FY20, we have to accept there is an economic slowdown and a downside risk to growth. One could target a nominal GDP growth of 10% or 10.5% which will be reasonable for the current year and it will help in deriving more robust revenue and expenditure numbers," said N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy, a think tank. For FY20, interim budget had projected a nominal GDP growth of 11.5%.

Close