FY22 collections: Net tax receipts may exceed revised estimate by Rs 80,000 crore

The Centre’s tax revenue — net of mandatory transfers to states — in 2021-22 could exceed the revised estimate (RE) in the recent Budget by up to Rs 80,000 crore or 4.5% or 0.3% of GDP, given the collections till January-end and the historical trend of a quarter of the revenues being collected in the last two months of a fiscal. This means the Centre’s fiscal deficit could be 6.6% of the GDP, lower than the RE of 6.9%. Of course, the estimate is based on the assumption that the REs of other inflows and outflows hold true.

The gross tax revenue (GTR) — receipts post-refunds but before transfers to states — stood at Rs 20.5 lakh crore till February 2 of the current financial year, according to an official source.

The February-March collections would be impacted by a slowing of growth in excise duty collections due to the rate cuts in November and the moderation in corporate margins due to the rising input costs. Still, GTR for the current financial year could be around Rs 26.5 lakh crore, up Rs 1.3 lakh crore from the RE. Therefore, net tax receipts could be around Rs 18.5 lakh crore, compared with the RE of Rs 17.65 lakh crore.

As per the Finance Commission formula, 42% of the divisible pool of taxes requires to go to the states and UT of Jammu & Kashmir. However, only 36% of GTR went to states in FY21, as the cess collections which are not to be shared with states, grew faster than the receipts from taxes in divisible pool.

It may be noted at Rs 25.2 lakh crore, the RE of GTR is higher than the Budget estimate (BE) by Rs 3 lakh crore or 13.5%. At Rs 17.65 lakh crore, the RE of net tax receipts is higher than the BE by Rs 2.2 lakh crore or 14%.

In the last financial year, too, the Centre’s actual tax collections were higher than the REs (see chart).

According to Icra’s chief economist Aditi Nayar, the Centre’s GTR may see an upside of Rs 50,000-1,00,000 crore over the FY22RE while the net tax revenues could be higher than the RE by Rs 35,000-70,000 crore. She noted that the dent to corporate profitability due to high commodity prices could dampen tax collections in Q4FY22.

Corporate firms pay their final advance tax of 25% of full-year tax liability by March 15.

The Centre’s tax revenues have been buoyant in the current fiscal with all major tax heads — corporation tax, goods and service tax, customs duty and personal income tax — contributing to it. A booming capital market is seen to allow the Centre to collect Rs 60,000-80,000 crore as capital gains tax in 2021-22 compared with just Rs 6,000-8,000 crore in FY21.

“On every count — corporate tax, income tax, TDS, self-assessment, regular tax, securities transaction tax and equalisation levy — this year is better than 2018-19, 2019-20, 2020-21,” Cental Board of Direct Taxes chairman JB Mohapatra said recently.

The spurt in tax mop-up is also driven by formalisation of the economy and greater compliance.

Gross GST collections came in at Rs 1.41 lakh crore in January (December sales), the highest mop-up in the history of the comprehensive indirect tax that was launched in July 2017. Even though e-way bills generation has declined by 4% in January over December, the GST collections could still be around Rs 1.3 lakh crore for February (January sales) going by the recent trends.

“Given the rising imports, largely stable consumption and push to investments by the government, GST collections will likely continue to be robust,” said India Ratings chief economist DK Pant.