Tax collections shortfall will not leave room for the income tax cut in Budget 2020-21

Tax collections for the current fiscal 2019-20 may fall short of targets by as much as Rs2 lakh crore on faltering economy. This would leave very little room for the Finance Minister Nirmala Sitharaman to offer a meaningful reduction in the personal income tax rates. Sources with direct knowledge of the same have informed Press Trust of India (PTI) tat income and corporate tax collections may miss FY2020 targets by as much as Rs1.5 lakh crore. Similarly, the indirect taxes – on the drop in the Goods and Services Tax (GST) in a sluggish economy – may fall short by about Rs50,000 crore.

There were expectations from FM Sitharaman that she would announce rate cuts for the individual taxpayers in line of the corporate tax rates cut – from 30 per cent to 22 per cent and 15 per cent from 25 per cent - that was announced in September 2019, but the lower tax collections and government's missing disinvestment target by a wide margin would limit her largesse.

The exchequer was shaved off Rs1.45 lakh crore as the government slashed corporate tax rates up to 10 percentage points, the biggest reduction in 28 years. The tax rates were slashed from 30 per cent to 22 per cent for existing companies and from 25 per cent to 22 per cent from new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023.

Besides, the government has also withdrawn the enhanced surcharge on long term capital gains (LTCG) and short term capital gains (STCG) for foreign portfolio investors (FPIs) as well as domestic portfolio investors. This has resulted in the revenue implication of Rs1,400 crore. The government has also announced other measures, since August 2019, having some revenue implication in its effort to stimulate the economy.

Sources also said that the constraints are just not limited on the direct tax side but also on the indirect tax collection, which is under stress due to the on-going slowdown and added the moderation in demand will surely have bearing on the Goods and Services Tax (GST) collections and customs too. Going by the conservative estimates, the indirect tax would see a shortfall of at least Rs50,000 crore.

Several experts including former Finance Secretary S C Garg have indicated at tax shortfall between Rs 2 lakh and 2.5 lakh crore during the current fiscal. "Overall, there is likely to be a shortfall of Rs3.5 to 3.75 lakh crore in gross tax collections of the Centre. Expecting that the Centre could revise transfers to the states out of the centre taxes (about 32 per cent of shortfall), the net taxes to the Centre are likely to be short by Rs. 2.5 lakh crore or 1.2 per cent of GDP," he had said in a recent blog.

Budget Estimates (BE) suggest that pegged that the Direct tax revenues - Corporation Income Tax (CIT) and Personal Income Tax (PIT) - together at Rs13.35 lakh crore, which is 16 per cent higher than the Budget estimate (Rs11.50 lakh crore) and 11.25 per cent higher than the revised estimate (Rs 12 lakh crore). Of this CIT is expected to contribute Rs7.66 lakh crore and PIT Rs5.69 lakh crore in 2019-20.

When it comes to indirect tax, the total amount budgeted as receipts for GST is Rs6.63 lakh crore for the current fiscal. Total customs revenues were budgeted to bring in gross receipts of Rs1.56 lakh crore while excise expected to garner Rs3 lakh crore during 2019-20.

The government has budgeted gross tax revenues of the Centre at Rs24.59 lakh crore. Setting aside Rs8.09 lakh crore as the share of the states, the budgeted net tax revenues to the Centre has been kept at Rs16.50 lakh crore. This was 3.13 lakh crore higher than the provisional/actual net tax revenues of Rs13.37 lakh crore collected in 2018-19, an increase of 23.4 per cent.