Budget 2020: Big tax shortfall in FY 21, GST shortfall likely to boost receipts

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Updated: Feb 02, 2020 3:43 AM

Budget 2020-21: On the personal income tax front, the government has cut the RE by only about Rs 9,500 crore and the BE for next fiscal has been pegged to grow at 14% over the RE of the current fiscal.

Budget 2020 India: For the next fiscal, the government hopes to improve it to 10.8% according to the budget estimate for GTR. GST revamp may be a way to improve tax receipts and buoyancy.

Faced with a steep shortfall in receipts for the current fiscal, the government has revised its gross tax revenue (GTR) estimate for the year by nearly Rs 3 lakh crore. That reflected a tax buoyancy to 0.5 — the lowest since FY 11. The FY21 BE for GTR has been pegged at Rs 24.23 lakh crore, a growth of nearly 12% over the revised estimate (RE) for the current fiscal.

Further, tax buoyancy — a ratio tax collection growth to nominal GDP growth — for the next fiscal is estimated to be an optimistic 1.2. Additionally, tax revenue in proportion to GDP for the current fiscal stands at 10.6% as per the RE, the lowest since FY 16. For the next fiscal, the government hopes to improve it to 10.8% according to the budget estimate for GTR. GST revamp may be a way to improve tax receipts and buoyancy.

While the RE has pruned all BE tax collection numbers, the largest cut is for corporate tax receipts — by Rs 1.6 lakh crore. The government has estimated that the revenue forgone for a corporate tax cut announced in September would be Rs 1.45 lakh crore. The BE for next fiscal for corporate tax collection is pegged to grow at 11.5% despite a revenue forgone on account of abolition of dividend distribution tax.

On the personal income tax front, the government has cut the RE by only about Rs 9,500 crore and the BE for next fiscal has been pegged to grow at 14% over the RE of the current fiscal. Going by the trend of collection in the April-December period, the income tax mop-up could fall short by nearly Rs 75,000 crore this fiscal but the government seems to rely on the last tranche of advance tax estimates, which might see big PSUs forking out major sums.
In the next fiscal, the government has estimated a possible revenue forgone on account of the new optional tax regime at Rs 40,000 crore. However, calculations show that new tax slabs, which are applicable without any exemptions except for employers’ contribution to pension scheme, may not find favour with assessees with more than Rs 10 lakh annual income.

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While the RE for GST has been cut by Rs 50,000 crore over the BE for the current fiscal, the trend of actual GST collection in the April-December period is largely in line with the RE, and with improved collection in January — the second highest of the fiscal at Rs 1.1 lakh crore — the RE of Rs 6.12 lakh crore seems achievable. The BE for the next fiscal is pegged to grow at nearly 13%.

Further, given the government had estimated that the collection in compensation funds would fall short by about Rs 63,000 crore in the current fiscal, the finance minister in the Budget announced that “transfer to the GST compensation fund balances due out of collection of the years 2016-17 and 2017-18, in two installments. Hereinafter, transfers to the fund would be limited only to collection by way of GST compensation cess.”

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