Bump in tax haul raises hope for govt target
The surprising growth of one-third in gross tax collection in August over July has helped the government put its fiscal house in order. The buoyancy has helped play catch-up with budget targets. The first four months of the financial year—April to July 2023—presented a sorry figure; gross tax collections were up only 2.83 percent over the same quarter in the previous year, and corporate tax collections fell 10 percent. With the August bump, the gross tax collection in the first five months now shows a healthy year-on-year growth of 16.5 percent. This is still early in the financial year. With the economy predicted to slow down in the second half, the government will be hoping that the tax mop-up tapers off slowly.
The government has set itself a challenging target of limiting the fiscal deficit to 5.9 percent of the GDP this financial year, against the 6.4 percent clocked last year. This is despite the fact that the Centre has raised the capital expenditure target by over 37 percent. Though it has kept the revenue expenditure target—the money spent on salaries, pensions and other administrative works—at only Rs 35 lakh crore, compared to Rs 34.6 lakh crore last year, it is quite likely that the target would be breached. Then the government’s only hope would be to have a robust revenue growth, tax and non-tax. The RBI has already paid `87,416 crore in dividend to the government. With disinvestment proceeds unlikely to meet the budget target of Rs 51,000 crore, it is only with a healthy tax collection that the government can hope to fill any revenue gap.
The good thing is that the goods and services tax (GST) collection remains strong. But GST alone cannot help the government achieve its ambitious fiscal deficit target. Direct taxes and other indirect taxes like customs and excise duties need to play their parts. Unfortunately, the economic sky has been clouded with rising oil prices, an underwhelming monsoon, and a likely slowdown of the global economy in the second half. With elections coming up, it remains to be seen whether the Centre throws fiscal caution to the wind.