Budget 2019: Despite extra levies on auto fuels, super-rich surcharge targets too challenging to meet

Indian Budget 2019: It will take a near-impossible buoyancy of 1.7 for the Centre to meet the gross tax collection target of `24.61 lakh crore in FY20. This is despite several steps taken to boost tax receipts — a net gain of `25,000 crore from indirect-tax measures taken in the Budget and over `6,000 crore from the steps on the direct tax front.

In fact, the Budget reduced the GTR target by over `90,000 crore or 3.6% from from the level projected in the interim Budget presented in February. Still, growth rate needed is over 18% over the actual collection, as provided by the Controller General of Accounts for FY19, rather than 9.5% from the revised estimate level shown in the Budget.

Tax buoyancy rose to 1.7% in FY 17, the year of demonetisation, but has since been in a sharp decline, falling to 1 in FY18 and just 0.7 in FY19. Tax buoyancy is the ratio of tax growth to GDP growth.

The FY20 Budget estimate for direct tax collections would need the combined collection of corporation tax and personal income tax to grow by 6% from the RE level but compared with the provisional actuals of FY19, the mop-up would have to rise by 18.6%.

The government has estimated that the higher surcharge on high net-worth individuals would yield `12,000 crore more in direct tax revenue. The effective tax rate on individuals with taxable income between `2-5 crore has gone up by 3 percentage points while it has gone up by 7 percentage points for those with taxable income of above `5 crore.
On the indirect tax front, the BE for the central goods and services tax (GST) has been cut by a steep 14% to `5.26 lakh crore.

However, the Budget estimates a robust collection of `3 lakh crore from excise duty, thanks to the hike of `1/litre on high speed diesel and petrol. Excise collections in FY19 was `2.31 lakh crore. Further, the proposed excise duty rate hike on cigarettes and certain other tobacco products will also help collections.

Similarly, the government has raised Customs duty rates on various finished products while total receipts on this head is estimated at `1.56 lakh crore in FY20.

“The reduction in GST budgeted revenue by about 14% seems to be driven by revenue collections in first two months of the financial year and the revised numbers look much more realistic. However, to bridge this deficit, tax rates under excise and customs have been increased in some cases,” said Pratik Jain, partner and leader, indirect tax at PwC India. He added that industry would hope that with revision in GST collections, the audits and scrutiny may not be as frequent and rigorous as was being feared earlier.