Centre’s FY20 revenue seen Rs 75,000 crore less than budgeted

By: and |
March 23, 2020 7:27 AM

Last year, the RBI gave an interim dividend of Rs 28,000 crore to the Centre in March, allowing it to prevent the deficits from enlarging from the RE levels. It is possible that RBI could issue an interim dividend by March 31.

The Centre’s share from the indirect tax dispute resolution scheme, that was under implementation between October 2019 and January 15, 2020, is estimated to be Rs 20,000 crore.The Centre’s share from the indirect tax dispute resolution scheme, that was under implementation between October 2019 and January 15, 2020, is estimated to be Rs 20,000 crore.

If April-January are to be the indicator, the Centre’s net tax receipts (NTR) in FY20 could fall short of the revised estimate (RE) presented in the recent Budget by a massive Rs 2.15 lakh crore or 14%. But certain last-minute, big inflows that haven’t really been accounted for in the Budget could reduce the NTR shortfall against RE to Rs 95,000 crore or 6%.

The Vivad Se Vishwas scheme could fetch the Centre Rs 1 lakh crore on a net basis, after the mandatory transfer of tax revenue to the states.

The Centre’s share from the indirect tax dispute resolution scheme, that was under implementation between October 2019 and January 15, 2020, is estimated to be Rs 20,000 crore.

In terms of the overall revenue receipts, the shortfall would be reduced further thanks to some Rs 20,000 crore to be raised additionally as ‘communication services’ receipts, a major head of non-tax revenue, thanks to the AGR payments made by telecom companies recently. While the AGR payments so far have been to the tune of Rs 27,000 crore, the excess over RE will be about Rs 20,000 crore only. This is because the RE was some Rs 7,500 crore higher than the BE, in anticipation of the modest expectations of AGR revenue at the time when the Budget was finalised. The Supreme Court’s firm stand on AGR has since led to higher than expected AGR inflows in FY20.

The residual overall shortfall in revenue will alter the Centre’s deficit numbers. The fiscal and revenue deficits for FY20 may turn out to be worse than the RE, as total revenue receipts are expected to be lower than the RE level of Rs 18,50,100 crore by at least Rs 75,000 crore or 4%.

If revenue expenditure remains the same as RE , the revenue deficit could be around Rs 5,75,000 crore in FY20 compared with RE of Rs 4,99,544 crore. Similarly, the actual fiscal deficit in the year could be Rs 8,42,000 crore against RE of Rs 7,66,846 crore, if overall spending is equal to the respective RE and other receipts like non-debt capital receipts stick to the REs.

Of course, when expressed as fractions of the Gross Domestic Product (GDP), the deficits are also to be impacted by the change in the FY20 nominal GDP, as computed in the second advance estimate released by the National Statistics Office on February 28. On the revised GDP base, the Centre’s fiscal deficit for FY20 could therefore be around 4.1% of GDP, compared with RE of 3.8%. Also, the revenue deficit could turn out to be 2.8% of GDP against RE of 2.4%.

It is not yet known whether the Centre would further compress the budget size (budget estimate was cut by 3.15% in RE to Rs 26,98,552 crore) to stick to the fiscal deficit target. Given the sagging economy, this is definitely not going to be preferred option for the government, but given the spread of coronavirus and the threat of it becoming a pandemic affecting the global economy, the government’s ability to spend the budgeted amount will likely be circumscribed. In such a situation, the slippages from deficit targets (REs) would reduce.

Last year, the RBI gave an interim dividend of Rs 28,000 crore to the Centre in March, allowing it to prevent the deficits from enlarging from the RE levels. It is possible that RBI could issue an interim dividend by March 31.

In August last year, the decided to transfer Rs 1.76 lakh crore to the Centre in 2018-19 (July–June), the entire net disposable income of Rs1.23 lakh crore and an additional Rs 52,637 crore of ‘excess provisions’ identified as per the Bimal Jalan committee, which reviewed the central bank’s economic capital framework (ECF).

Going by the trend in gross tax receipts till January, the biggest shortfall is expected from the personal income tax collection, which is likely to miss the FY20 target by nearly 12% or Rs 66,000 crore. About Rs 36,000 crore shortfall in corporate tax and about Rs 20,000 crore in customs duties are also expected. Excise duty collections could also meet only 93% of the revised estimate, missing the target by over Rs 17,000 crore. Even though GSTc collections have some improvement recently, there could still be a shortfall of Rs 14,400 crore in the Centre’s GST receipts (CGST and compensation cess).

While the revenue garnered from the indirect tax disupute resolution scheme was about 10% of the total amount stuck in litigation, Vivad Se Vishwas could better, as under the scheme the taxpayer is offered waiver of interest and penalty only and the disputed tax amount requires to be paid. Analysts say it is safe to assume that 20% of the stuck amount of Rs 9.3 lakh crore would be collected. This would add Rs 1.8 lakh crore to gross tax receipts and net of transfers to states, the centre will likely lay hands on some Rs 1 lakh crore.

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