The Centre’s gross tax receipts (GTR) grew by a steep 34% on year in 2021-22, beating the revised estimate (RE) put out in the Budget for 2022-23 by Rs 1.91 trillion or 7.6%.
Direct tax collections grew by a massive 49% on year, and indirect taxes by 20%.
Though the impressive growth in tax mop-up in the last financial year was helped by a very favourable base – tax growth was flat in 2020-21, the year in which the economy contracted by 6.6% – credit may go to the tax authorities for clamping down on evasion and improving compliance in a major way. A year-on-year decline in refunds also boosted the receipts.
The FY22 gross tax receipts being much higher than RE would mean that only flat growth of 1.9% is required to meet the budget estimate for FY23; that requires a very low tax buoyancy of 0.16 against 1.8 seen in FY22. The tax-to-GDP ratio jumped to 11.4% in FY22, the highest level since FY08, from 10.3% in FY21.
Interestingly, the direct tax collections in FY22 of Rs 14.1 trillion is almost the same as the target for the current financial year.
Corporate tax collections, after refunds, in FY22 stood at Rs 7.11 trillion against RE of Rs 6.35 trillion and FY21 level of Rs 4.58 trillion. Personal income tax collections in the last fiscal were Rs 6.95 trillion against RE of Rs 6.15 trillion and Rs 4.87 trillion collected in FY21.
Direct tax refunds in FY22 were to the tune of Rs 2.25 trillion compared with an all-time high Rs 2.6 trillion in FY21.
Robust tax collections may continue in FY23 too, though the rate of annual growth will be much lower this year on a normalised base. This, coupled with higher-than-budgeted non-debt capital receipts due to robust disinvestment receipts, may boost the overall receipts, giving the Centre a much-needed fiscal cushion and facility to meet ambitious capital expenditure commitments.
Goods and service tax collections in April are seen to be in excess of Rs 1.5 trillion, beating all-time high mop-up of Rs 1.42 trillion in March by a wide margin. However, if global oil prices remain elevated, the government may come under pressure to cut the cesses on petrol and diesel to give some relief to the consumers and forgo significant revenues.
The GST Council has plans to restructure the tax slabs with a view to taking the weighted average tax rate from around 11.5% now to revenue-neutral level of above 15%. Though the high inflation prevailing now could delay the rate revisions, as inflation cools by the second half of the fiscal, the rate rejig could take place.
The Centre’s net tax revenues (after devolution to states) in FY22 might be in the region of `18.85 trillion, higher than the RE by Rs 1.2 trillion.
The Budget for FY23 assumes nominal GDP growth of 11.1% for the year. Independent estimates say the growth could be a bit higher due to elevated inflation, even though the real GDP expansion might turn out to be less than 8-8.5% forecast by the Economic Survey (The RBI on Friday cut its forecast for real GDP expansion in the current financial year to 7.2% from 7.8% announced in February).
That means the buoyancy required to achieve the targeted net tax receipts (BE) will be far lower than 0.9 estimated in the Budget.
The tax authorities has put to good use various tools at their disposal, including a repository of information gathered as annual information returns and an effective linkage that has been established between the direct tax and indirect tax wings. The GST system has a robust anti-evasion built-in via means of its very structure and assimilation of technology.
Aditi Nayar, chief economist at Icra, said: “The actual tax devolution to the state governments in FY22 stood at Rs 8.8 trillion, a considerable Rs 1.4 trillion higher than the RE of Rs 7.4 trillion. After removing the payment related to arrears for past years, aggregate devolution to states in FY22 has overshot the RE level by ~Rs 0.95 trillion.”