Budget 2021: Are India’s Tax Targets Realistic?
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Budget 2021: Are India’s Tax Targets Realistic?

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The Indian government has projected its tax revenue to grow in double digits again. Yet, despite having missed its ambitious targets over the past few years, the government’s estimate may not be far-fetched this time around.

The estimate for gross tax revenue for 2020-21 was revised lower to Rs 19 lakh crore from Rs 21.6 lakh crore announced in the previous budget, according to the Budget 2021 documents. That’s a 5.4% decline over the tax collected in 2019-20, as opposed to the 12% growth it had originally projected.

Still, for the upcoming financial year 2021-22, the government expects a 16.6% increase in gross tax revenue at Rs 22.17 lakh crore. The net tax revenue for FY22 is estimated at Rs 15.45 lakh crore compared with the revised estimate of Rs 13.44 lakh crore for FY21. That, too, is a 14.9% rise compared with the 8.7% growth it was expecting last year.

Also read: Budget 2021: We Spent, Spent, Spent, Says Nirmala Sitharaman. Did They?

The government’s tax estimates, though seemingly lofty, are actually achievable, say many economists. The confidence is drawn from a sharp recovery in tax revenue since November 2020 buoying hopes that the revised tax targets for FY21 will be exceeded and next year’s will be achievable.

“We reckon that the revenue targets set (for FY22) are not ambitious given the expected sharp recovery in nominal GDP growth,” HDFC Bank's Chief Economist Abheek Barua wrote in a post-budget note.

Pranjul Bhandari, HSBC’s chief India economist, concurred. The tax estimates for both FY21 and FY22 are conservative, Bhandari said in a post-budget note. The assumed tax buoyancy—a measure of tax collected per unit of gross domestic product—of 1.2 in FY22 is also low, Bhandari noted, adding that it could be due to greater formalisation.

In her budget speech, Finance Minister Nirmala Sitharaman did not announce any major changes to the country's personal tax regime. However, the budget proposed a cess on 25 products while reducing the customs duty on those items.

The central government is also expecting to garner Rs 6.3 lakh crore from goods and services tax. That, too, may be a conservative estimate given the rebound in economic activity and recent monthly GST collections, HDFC Bank's research note said.

GST collections have crossed the Rs 1 lakh crore mark for four consecutive months and hit an all-time high of Rs 1.2 lakh crore in January 2021. “Our calculations show that a monthly run rate of Rs 96,600 crore is required to meet the target,” HDFC said.

Also read: Budget 2021: Key Tax And Regulatory Changes

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