The Budget remains fairly confident about growth in tax revenues despite an expected slowdown in nominal gross domestic product (GDP) growth in the coming fiscal, expecting a sharp increase in both gross and net (post devolution to states) tax receipts for fiscal 2023-24. Gross tax revenue has been pegged at 10.5% to Rs 33.6 trillion in 2023-24. Nominal GDP growth, however, is expected to slow to 10.5% next fiscal from about 15.4% this fiscal, implying a tax buoyancy of about 1 next fiscal, as against 0.8 in FY23.
While some moderation in growth in tax revenue has been factored in, the numbers are being seen as quite ambitious. Projections for FY24 come on the back of higher revised estimates for tax collection this fiscal, which has been possible due to a robust recovery in economic activities and higher inflation.
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For FY23, the revised gross tax revenue target is Rs 30.4 trillion from the Budget estimate of Rs 27.6 trillion, translating into a 12.2% increase in gross tax revenue compared to 2021-22.
Economists have also raised doubts over the projections. “Are the Budget numbers overly optimistic? On the margin, we think yes. We expect growth to slow materially in FY24, owing to a mix of DM (developed markets) recessions and the lagged impact of tighter monetary policy, with real GDP growth at 5.1% year-on-year in FY24 and nominal GDP growth at 8.5%-9%. The resulting lower nominal GDP growth means tax revenues are likely to disappoint,” Nomura said in a note.
HSBC said revenue assumptions may be a bit rich. “The tax buoyancy of 1 seems slightly high (versus an expected 0.8 in FY23), given that falling nominal GDP growth is generally associated with some taxpayers falling below the minimum threshold, and the government’s tax reforms, which are budgeted to lower tax revenues by Rs 35,000 crore,” it said.
However, a focus on improved compliance could help boost collections to some extent.
Tax collections as a percentage of GDP are likely to remain at 11.1% in the new fiscal, the same as the projection for FY23. It was 11.4% in 2021-22.
For the next fiscal, the Budget expects a moderation in direct tax receipts, but is confident that the goods and services tax (GST) will continue to register robust growth. Overall direct tax collections are estimated to grow by 9.6% to Rs 18.2 trillion in FY24, while indirect tax kitty is projected to increase at a slightly faster pace of 10.4% to Rs 15.34 trillion.
Goods and services tax collections are pegged to grow by nearly 13% to Rs 9.6 trillion in FY24 from the revised estimate of Rs 8.5 trillion this fiscal. “As the tax collection from the GST stabilises, it is likely to boost indirect tax collection with an estimated GST buoyancy of 1.14 in the ensuing year,” said the Budget document.
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“Revenue receipts assumptions seem broadly realistic and seem to reflect the slowdown in nominal growth expected in FY24… The collections under GST although could be marginally lower than assumed in the budget for FY24,” said a note by HDFC Bank Treasury Economics Research Team .
The Centre’s net tax revenue post devolution to states is expected to increase by 11.5% to Rs 23.3 trillion in FY24 from Rs 20.9 trillion in the revised estimate this fiscal. Devolution to states is expected to increase at a slightly slower pace of 10.8% in FY24 to Rs 10.2 trillion from Rs 9.2 trillion in FY23. The Budget has earmarked Rs 32,610 crore in the revised estimate for FY23 as adjustment for share of states for previous years.
Revenue receipts are estimated to rise by nearly 12% in FY24 to Rs 26.3 trillion from Rs 23.5 trillion this fiscal. Non-tax revenue, including receipts from interest and dividends, are estimated to rise marginally to Rs 3 trillion in FY24 from Rs 2.6 trillion this fiscal, while non-debt capital receipts are projected to stay constant at Rs 80,000 crore.
