An attendee uses a calculator in a finance and investing class. (Photographer: Kiyoshi Ota/Bloomberg)

Budget 2019: Is Modi’s Election Budget Powered By Ambitious Tax Targets?

The short answer to that is - Ambitious, Yes. Unachievable, No.

The Narendra Modi government expects to finance its poll-oriented promises such as an assured income scheme for farmers and pension scheme for workers in informal schemes via a jump in tax revenue but an achievable jump.

Having achieved a 17 percent increase in gross tax revenue collections for financial year 2018-19, the union budget has estimated a more moderate 13.5 percent increase in FY20. In FY18 it achieved an 11.8 percent increase in gross tax revenue.

This rides on an expected 13.26 percent increase in corporation tax, an over 17 percent increase in income tax and an 18 percent increase in GST revenue over revised estimates for FY19.

Budget 2019: Is Modi’s Election Budget Powered By Ambitious Tax Targets?

While the 17 percent estimated increase in personal income tax seems steep, it comes on the back of a 22.8 percent rise in FY19 to Rs 5,29,000 crore and an 18 percent increase in FY18 to Rs 4,30,772 crore . While that may seem a tad aggressive, especially given the big tax relief the budget has given middle class India, the cost of that tax rebate is estimated to be just Rs 18,500 crore in the next fiscal, according to Finance Minister Piyush Goyal’s speech.

As for increase in corporate tax collections, the 13.26 percent growth in FY20 follows a 17.4 percent increase in FY19 to Rs 6,71,000 crore and an almost 18 percent increase in FY18 to Rs 5,71,202 crore.

The FY20 Goods and Services Tax revenue target estimates an 18.21 percent increase to Rs 7,61,200. This might seem ambitious given that in FY19 the revenue collection estimate has been revised downward by almost one lakh crore rupees. (In the 2018 Budget the government had estimated collecting Rs 7,43,900 crore this year but has revised that to Rs 6,43,900 crore now.)
Yet, an expanding indirect tax base, now twice that of the earlier indirect tax regime, simpler filing processes and recently lower rates, may help revenue collection meet its goal. It’s simply too new a tax system to forecast.

Since GST was implemented starting July 2017, its revenue numbers are not strictly comparable across the three financial years. An aggregation of all indirect tax revenue might be a better measure of revenue ambition and indicates the government is banking on an 11.8 percent increase in FY20 versus a 14.31 percent increase in FY19 and an 5.58 percent increase in FY18. To be fair, the FY18 collections were hurt by GST-led implementation confusion.

One final set of numbers to help determine the tax expectations - the net tax revenue to the center in FY20 is expected to increase by Rs 2.2 lakh crore versus an increase of Rs 2.4 lakh crore this year.

Also read: Budget 2019: Government Proposes Income Tax Breaks For The Middle Class Ahead Of Elections