India’s Tax Collection Growth In First Half Of FY20 Lowest In A Decade
Tax collection growth remains dismal, raising questions about the government’s ability to meet budgeted targets.
India’s gross tax collection growth in the first six months of the ongoing fiscal hit a decade low in a year when the government is almost certain to miss its fiscal deficit target.
Gross tax revenue for the April-September period of 2019-20 grew 1.5 percent year-on-year to Rs 9,19,470 crore, according to data released by the Controller General of Accounts on Thursday. That compares with 8.6 percent growth in the same period a year ago, and it’s the slowest pace since 2009-10 when the tax revenue in the first half had contracted 7.6 percent.
The government expects to earn Rs 24.6 lakh crore in gross taxes in 2019-20—an 18 percent rise over last year. It was hoping to earn Rs 22.7 lakh crore in 2018-19, a rise of 18.4 percent. However, it could only collect Rs 20.8 lakh crore, representing a much lower 8.4 percent growth, the slowest in Prime Minister Narendra Modi’s administration.
That’s a significant concern for the Modi government which is struggling to keep its finances in check when the nation is facing its worst economic slowdown in six years. After announcing a Rs 1.45 lakh crore stimulus in the form of corporate tax rate cuts and no immediate plans to lower its spending, the government will now have to rely on asset sales to meet its fiscal deficit target if things do not improve in the second half.
‘Daunting Task’
That won’t be easy. Net tax revenue collections grew 4.2 percent in the first six months—also the lowest growth in 10 years. Till September this year, it mopped up 36.8 percent of its budgeted target, compared with 44 percent of what it collected last year.
“Net tax revenue has to grow 42 percent to achieve FY20 budget target of Rs 16.5 lakh crore, which appears to be a daunting task,” Devendra Pant, chief economist at India Ratings and Research, said in an emailed statement. While the growth is likely to improve in the second half and will translate into relatively better tax collection growth, Pant said corporate rate tax cuts will limit the upside. “In all probability, the government will miss its FY20 fiscal deficit target of 3.3 percent of GDP.”
The Central Board of Direct Taxes plans to double down on recovering pending tax dues, or amounts stuck in litigation, of about Rs 12 lakh crore to make up for the shortfall.
Divestments, too, remain muted. In the first half of the fiscal, receipts through sale of stake in state-run companies stood at Rs 12,359 crore compared with an ambitious Rs 1.05 lakh crore target, according to Pant. The government is looking to sell off the national carrier Air India once again and if that fructifies it will help in achieving the target.
“Confidence can be drawn from the disinvestment performance of the government in last couple of years where they have been able to surpass budgeted disinvestment target and majority of this has happened in third and fourth quarters,” Pant said.