Revenue secretary Sanjay Malhotra on Friday reiterated that the tax revenue estimates in the interim Budget are realistic, as it involves an estimated buoyancy of just 1.1 next fiscal against 1.4 in the current year. Discounting the notion that a overhaul of the capital gains tax structure may be on the cards, the official said, the effective rates of this tax for asset classes like equity and real estate are tending to be more or less similar with the benefit of indexation. Excerpts from an interview with Priyansh Verma.
Q. Are the tax revenue estimates for FY25 realistic?
A. Tax revenues are a direct function of three factors – nominal GDP, tax rates and efficiency. We have not changed the rates this time. The tax buoyancy for the next year has been assumed at 1.1, with 10.5% nominal GDP growth estimate. This is a very realistic estimate. The buoyancy of 1.1 after the buoyancy of 1.4 (FY24) is a reasonable assumption.
Q. FY24 observed a record-high buoyancy of 2.5 of personal income tax (PIT). What are the reasons behind this?
A. A lot of it has to do with the use of technology, rationalization and simplification of taxes and procedures, improved tax payer services, which have led to higher tax compliance. Introduction of AIS, third party data, updated returns, ec have helped. That seems to be the primary reason.
Q. The sunset date for concessional 15% corporate tax for new manufacturing units was not extended beyond March 31, 2024. Can we expect some announcement in full Budget regarding this?
A. The corporate tax rates are very reasonable at 22%, and compared to many other large economies, they are low. The balance sheets of both banks and the corporate sector are looking healthy. Several measures, such as PLI (production-linked-incentive), have already been taken by the government to encourage private investments. Based on these, I sincerely hope that private investments will (pick up) in our country.
Q. Any changes in PIT rates under consideration for the full Budget?
A. It’s premature to say.
Q. Can we expect any tweaks in PIT structure in the full Budget?
A. It’s an ongoing agenda. We are always open to considering (such changes).
Q. Are you considering making changes in the capital gains tax structure?
A. Capital gains tax is not a major issue. The effective tax rates on various asset classes are more or less similar. There is one 10% rate, and the other is 20%, but this is with the benefit of indexation. Real-estate has 20% rate, while stocks have 10%, both part of long-term capital gains structure. This is where the rate rationalization is being sought.
When you include the benefit of indexation due to inflation, the effective tax rate we’ve seen over long periods of time in the past is roughly about the same as 10%. So effectively, both the rates are converging.
Q. Has the 28% GST on online gaming companies from October 1, 2023 lead to an increase in revenue for the government?
A. We observed that post October 1, the revenue collected from online gaming companies came in at Rs 3,470 crore in Nov-Jan FY24, pertaining to the period of Oct-Dec 2023. This is about 475% higher than Rs 605 crores collected for the July-September quarter. We expect that on an annualised basis, the governments – states and centre – will fetch an additional revenue of Rs 12,000 crore because of the 28% GST on online gaming companies.
Q. But the industry fears that the tax liability demands of online gaming companies for previous years, which runs into Rs 1 trillion, may kill the nascent industry. Is the government open to reconsidering its position on retrospective application of the levy?
A. The GST Council will decide on this matter. The Council always takes a prudent, balanced view of issues. I don’t want to speak on it, right now. As and when such a need arises, the Council will decide.
Q. Is there any proposal to include electricity into GST?
A. There is no such proposal for now.
Q. The government expects to meet its 4.5% fiscal deficit target by FY26. Do you feel the revenue collections would support the consolidation, and the government will not have to rely too much on cutting expenditure?
A. Fiscal deficit depends on both revenue and expenditure. Both are equally important. We are confident that we will achieve the targets that have been set for us.