Indian Union Budget 2021-22: After two successive years of contraction, gross tax revenue is expected to rise 16.5% on year in FY22 to Rs 22.2 lakh crore, providing a resource-strapped government a much-needed leeway to continue to boost spending to reverse a Covid-induced slide in growth.

The rise hinges on a projected robust expansion in corporate and income tax collections by 22.6% and 22.2%, respectively, over the revised estimates for FY21. This translates into a tax buoyancy (a ratio of the rise in taxes to nominal GDP growth) of 1.16.

However, given the “one-in-a-century crisis” unleashed by the pandemic, analysts chose to focus more on the tax-to-GDP ratio, which is expected to inch up only a tad to 9.9% in FY22 from a revised 9.8% this fiscal. This will be way below the 11.2% level achieved in FY18, the year after demonetisation and the highest witnessed during the current NDA regime. Tax collections are expected to drop 5.5% (revised) on year in FY21, against a 3.4% drop in FY20, in the wake of the pandemic.

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Amit Maheshwari, tax partner at consulting firm AKM Global said: “The target for direct tax collection is set at `11 lakh crore for FY22 in the Union Budget. We should keep in mind that we are seeing an average growth in direct taxes of 14% year-on-year so far. Taking it to straight 22% growth rate would be highly ambitious, especially when the economy is in a recovery mode.”

While the finance minister left the tax slabs unchanged, the ambitious Budget estimates for the next fiscal are relying on further tightening of compliance measure which would come into force in the next assessment year and likely to yield better revenue. This includes restriction on annual premium paid for ULIPs and for provident fund to Rs 2.5 lakh.

The Budget notes that government has noted instances where high net worth individuals were depositing huge sums of money in both instruments as the maturity sum for ULIPs and interest earned on provident fund deposits are not taxed. Similarly, it has proposed to hike TDS rate for non-filers of income-tax to as much a twice of regular rate.

On the indirect tax front, the Budget has lowered the budget estimate for excise tax in the next fiscal by 7.2% to Rs 3.35 lakh crore from the revised estimate for the current year. This is primarily due to the introduction of Agriculture Infrastructure and Development Cess which will be imposed on petroleum products after cutting an equivalent quantum of basic and special addition excise duty. Finance secretary Ajay Bhushan Pandey said that Rs 30,000 crore is expected to accrue from new cess.

The customs duty collection is expected to grow by 12.2% in FY22 to Rs 1.36 lakh crore while the Budget expects the Goods and Services Tax collection to grow by 12.2% to Rs 6.3 lakh crore (including compensation cess).GST collection has grown by 8% in the October-January period in the current fiscal after having contracted by 24% in the during April-September.