Government revenues likely to fall short of the mark this year

A combination of policy changes and economic conditions is likely to severely impact the government of India’s revenue collection targets, according to Ashutosh Dikshit, a partner at Deloitte. Dikshit advises the government to keep its targets realistic and minimise pressure.

A number of factors are likely to squeeze revenue collection levels for this fiscal year, which is likely to result in a considerable disappointment vis-à-vis government collection targets. Deloitte's Ashutosh Dikshit lays out a few of these factors, which stem from a range of circumstances that have unfolded this year.

“This year’s Budget numbers when they finally come out will have many variables which are going to impact and all of them are going to impact the tax revenue numbers negatively. One, of course, is that the base on which the tax revenue was earlier projected for 2020, that base itself was not achieved,” said Dikshit in discussion with the Economic Times.

“Second, the corporate tax reset which happened in October and which was passed in December. If we factor in both of these into the Budget numbers and do not take anything else into account, that straight away will lead to a reduction of 1.8% in tax collections as per the GDP. If we take the GDP that is at rate of 8% nominal growth, rather than the 12% which was projected in the Budget, it is going to be a very heavy shortfall,” he added. 

Corporate taxes were slashed in an attempt to promote a more business-friendly environment in India, with a particular focus on boosting the country’s manufacturing numbers. The tax rates went down from 30% to 22% across India, while the manufacturing sector’s burden has fallen even lower to 15%. 

Experts have indicated that the tax has mixed benefits, with many lauding it as a big step forward with respect to India’s economic goals, while others have expressed concern that it disproportionately benefits new businesses. At any rate, the slashed rates are likely to dent collection numbers significantly.

In maintaining its lofty collection targets, the government appears to be relying on the steady inflow from the Goods & Services Tax (GST), given its efforts to promote collection. Revenues from the GST have already been substantial, and the use of technology is set to make the collection process even more efficient.

Nevertheless, GST collections have been falling well short of their targets, and Dikshit believes that these are unlikely to cover the difference from the corporate tax. As a result, he urges the government to keep its collection targets in check for the current period, until momentum is regained.

“The government should not try and be over ambitious on these targets because it results in unnecessary pressure on the tax authorities for collecting unrealistic targets,” he said.