A slowing economy makes it difficult for FM to meet tax collection target

By: |
Published: September 3, 2019 1:28:48 PM

A slowing economy has made it difficult for Nirmala Sitharaman to compensate for any loss in GST collections from buoyancy in corporate tax collection.

Finance Minister Nirmala Sitharaman, GDP, growth rate, tax collection target, gst, corporation taxFinance Minister Nirmala Sitharaman.

GDP Growth: Finance Minister Nirmala Sitharaman’s target to increase the tax collection by over 10% suddenly looks even more difficult to achieve as the GDP growth rate crashed to just 5% in the first quarter of this financial year. In her maiden budget presented in July, Nirmala Sitharaman estimated that the Centre’s net tax collection would be Rs 16.49 lakh crore this year against Rs 14.84 lakh crore collected last year. It will be an increase of Rs 1.62 lakh crore or 11% over the Centre’s net tax collection last year. However, this projection was based on the improved performance of the corporate sector, as she had hoped to garner more than half of the total projected growth in tax collection from the corporation tax alone which is struggling with low demands and job cuts across several sectors.

According to the information given in this year’s budget, finance minister Sitharaman estimated to earn Rs 7.66 lakh crore from corporation tax alone, an increase of Rs 95,000 crore against the previous year’s collection.

The projected growth in corporation tax collection this year accounts for nearly 60% of the total projected growth of Rs 1.62 lakh crore estimated by the finance minister for this year.

ALSO READ: Panel blames lack of level playing field, discriminatory regulation for high level of cash in system

Nirmala Sitharaman had hoped that she would be able to compensate for any loss in GST collections from buoyancy in corporation taxes, two biggest sources of tax revenue for the Union government.

“The government had expected that the economy will improve,” said economist Praveen Jha.

However, lack of compliance, low filing of returns, the problem of fake invoicing and consistent demands from the industry and consumers to reduce GST rates have resulted in gross monthly GST collections to be range-bound at around Rs one lakh crore this year. In fact, it has come down below Rs 1 lakh crore in two months of the total five months of this fiscal so far.

After the sharp decline in GDP growth rate in April-June quarter, economists are concerned that the Union government may miss both its GST and corporation tax collection target this year.

ALSO READ: RBI cancels registration of 12 NBFCs; 5 more surrender their licences

“The final collection numbers are always lower than the budget estimates,” Praveen Jha, professor of economics at JNU, told Financial Express Online.

“It’s not with this government alone, it has happened with several governments in the past as well,” he said.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1Bad news on economy front: Manufacturing dips to 15-month low
2Less taxing: New legacy dispute resolution scheme may fetch government Rs 20,000 crore
3Chile wants to expand India trade ties, says Rodrigo Yanez, country’s vice-minister of trade