2021 – The Year That Was: Formalisation boosts tax revenues, projected level to be beaten by wide margin

Gross GST collections came in at Rs 1,31,526 crore in November (October sales) 2021, the second-highest mop-up in the history of the comprehensive indirect tax that was launched in July 2017.

An expansion of the GST taxpayer base helped boost direct taxes too.
An expansion of the GST taxpayer base helped boost direct taxes too.

The ratio between the Centre’s gross tax revenue and GDP will likely touch a 15-year high of 11.4% in FY22, while tax buoyancy will be the highest in over a decade at about 2. This will give the required cushion to the Union government to expand the budget size by about Rs 2 lakh crore from the projected level (BE) without deviating much from the fiscal deficit target of 6.8% of the GDP.

The Centre’s pre-devolution tax revenue could end up being around Rs 25.5 lakh crore or 15% more than the FY22 budget estimate, as both direct and indirect tax receipts are seen growing much faster than projections, after two pandemic years that saw little growth in the receipts.

The surge in tax mop-up is driven by both ‘forced’ formalisation in the aftermath of the pandemic and greater compliance after the revenue authorities threw back a lot of data on spending patterns and sales to tax payers, shrinking scope for tax evasion. The inorganic formalisation, coupled with cost-cutting by India Inc, have boosted the profitability of large companies, leading to strong growth in the corporation tax collections.

An expansion of the GST taxpayer base helped boost direct taxes too. Gross GST collections came in at Rs 1,31,526 crore in November (October sales) 2021, the second-highest mop-up in the history of the comprehensive indirect tax that was launched in July 2017.

Net tax revenue (after mandatory transfers to states) of the Centre grew by 83% on year in the first seven months of the current financial year and the full year collections could be around Rs 2.5-3 lakh crore higher the BE of Rs 15.45 lakh crore. The net tax revenue could have been even higher had the Centre not cut excise duty on petrol and diesel on November 3. With duty cut to cost the Centre about Rs 65,000 crore, the gross excise duty collections could end up 14% lower on year in FY22 as against growth of 27% seen till October.

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