Arun Jaitley unlikely to raise FY15 tax revenue target

Written by Arup Roychoudhury | Gireesh Chandra Prasad | Gireesh Chandra Prasad | New Delhi | Updated: Jun 10 2014, 12:06pm hrs
RupeeThe interim budget pegged 19% growth in the centre's gross tax revenue of over R11.59 lakh crore (revised estimate) in FY14.
In the first budget of the Narendra Modi government next month, finance minister Arun Jaitley is likely to retain the FY15 gross tax revenue target of Rs 13.79 lakh crore set by predecessor P Chidambaram in the interim Budget presented

in February.

The interim budget pegged 19% growth in the centre's gross tax revenue of over Rs 11.59 lakh crore (revised estimate) in FY14.

Analysts say retaining the tax growth estimate for FY15 might be on expected lines as the economy is yet to show any conclusive signs of bottoming out. It will, however, create pressure on budget planners to increase non-tax revenue and capital receipts, given the tough fiscal deficit target of 4.1% of GDP. (The RBI has forecast GDP growth for FY15 at 5-6%.)

Though fuel-pricing reforms and a likely hike in urea price will allow some savings on the revenue expenditure side, the government would still be constrained in increasing capital spending to kick-start the economy. Given that private investments are yet to flow in, the government is keen that it doesn't cut back on capital spending, and would actually want to increase it a bit.

As per the interim budget, total expenditure for FY15 is estimated at R17.63 lakh crore.

No decision has yet been finalised on an increase in disinvestment and special dividend compared to the interim budget, an official said. There is no indication either that the fiscal deficit target will be tweaked.

Our tax-GDP ratio fell to 9.5% in FY14 from about 10% in FY13. Unless the goods and services tax is implemented that ratio won't increase. Clearly, GST can't be rolled out this fiscal, another official said.

In his first address to the newly elected members of the 16th Lok Sabha, President Pranab Mukherjee said that passage of GST will be one of the new government's main economic agendas.

This does not mean that no changes are being planned on the direct and indirect taxes front. There will be minor revamps, but these have already been factored in the expected 19% tax growth from the FY14 revised budget to FY15 interim budget, finance ministry sources added.

The broad tax policy direction evolved over the last few years of widening the tax base, phasing out profit-linked incentives and correcting inverted duty structure will continue in the new NDA regime. However, the lack of legroom for increasing the tax rate or introducing new levies in a sluggish economy has made the government pay extra attention on raising revenue through checking tax evasion.

As regards direct taxes, the governments policy is to phase out profit-linked deductions and minimise exemptions, the finance ministry said in a note regarding budget preparations.

Jaitley will have to decide whether to continue with the 10% surcharge on personal income above R1 crore introduced in Finance Act, 2013-14. If retained, it would mean continuation of higher tax liability for affluent taxpayers without adopting the super-rich tax proposals of the DTC. The 10% surcharge takes the total tax liability of those coming under the top 30% slab to 33%, very close to the fourth slab of 35% proposed in the revised DTC.

In indirect taxes, Jaitley's focus is likely to remain on improving administrative efficiency and enhancing tax collection using IT tools there is little scope in a sluggish economy to raise tax revenue by either introducing new taxes or raising rates.

Sectors the Central Board of Excise and Customs (CBEC) has identified for thorough combing to prevent tax-evasion include the iron and steel sector for rampant misuse of duty credit facility. Many businesses manipulate invoices of raw materials purchased for wrongfully availing input tax credit, said a person familiar with discussions in the ministry.