NEW DELHI: Direct tax receipts will likely show a robust performance for the third year in a row post-pandemic, giving enough space to the Centre to keep the fiscal deficit within the targeted limit. This is despite additional spending expected on food, fertiliser and job guarantee programmes, and a lower than expected growth in nominal GDP as a fraction of which the deficit is usually expressed.
Official sources said the Centre’s gross direct tax collections (after refunds but before devolution to states) could exceed the budget estimate by over Rs 1 trillion in 2023-24.
According to FE estimate, the Centre’s direct tax revenue before transfers to states could exceed BE by even Rs 1.3 trillion, fetching the Centre around Rs 0.8 trillion extra on a net basis.
On the other hand, aggregate indirect tax revenues to are largely on track, assuming no cut in excise duty on petrol and diesel, in the run-up to general elections.
The FY24BE for indirect taxes could probably be met, or fall short of target marginally. While the indirect tax receipts were budgeted to decline 1.9% on year to Rs 13.93 trillion, the actual receipt in April-October shows a 3.5% increase on year.
“The additional direct tax revenues are a comforting factor, but still four months to go till the year ends,” a senior official said indicating that additional spending heads on welfare schemes before general elections in April are not ruled out.
Recently, Finance Minister Nirmala Sitharaman urged tax officers to maintain the growth in direct tax collections at around 17% in FY24, the level achieved in the previous financial year.
A 17% annual growth in direct collections (net of refunds but before devolution) would mean the receipts would be Rs 1.27 trillion more than the budget estimate of Rs 18.23 trillion for FY24.
According to official data released on November 9, direct tax collection stood at Rs 10.6 trillion which is 21.82% higher than the net collections for the corresponding period of last year. This collection was 58.15% of the budget estimate of Rs 18.23 trillion for FY24. The receipts were estimated to be 9.4% higher than collected in FY23.
In 2022-23, the centre’s direct tax collections were at Rs 16.67 trillion, Rs 2.47 trillion or 17.4% more than the FY23 budget estimate as well as FY22 actuals of 14.2 trillion.
With non-tax revenues expected to exceed the FY24BE by over Rs 60,000 crore and savings under many centrally sponsored schemes and central sector schemes, the government has enough firepower to meet additional expenses in existing or new schemes without breaching the fiscal deficit target of 5.9% for the current financial year.
The Centre’s fiscal deficit came in at 45% of the budget estimate (BE) in the first seven months of the current financial year compared with 45.6% of the respective target in the year-ago period, largely due to a 15% decline in capital and revenue expenditure in October.
“After considering the additional economic cost towards the extension of free foodgrains under the NFSA for January-March 2024, the higher subsidy on LPG, the Nutrient Based Subsidy rates on P&K fertilisers for the ongoing rabi season, and the additional amount likely to be required for MGNREGS, we estimate spending to exceed the FY2024 BE by Rs 0.8-1.0 trillion,” Icra chief economist Aditi Nayar said.
“However, this sum could be matched by expenditure savings, which have ranged between an estimated Rs 1.1-2.3 trillion in recent years. As a result, we foresee a low risk of the fiscal deficit target of 5.9% of GDP being breached.”
Icra’s baseline expectation is that direct taxes will surpass the FY24 budget estimate by Rs 0.85 trillion, a portion of which will be absorbed by lower-than-budgeted union excise duty collections, leaving a gross upside of around Rs 0.5 trillion.
“Setting aside the additional devolution to the states, we estimate that net tax revenues will exceed the FY24 BE by a modest Rs 0.3 trillion. However, this will be offset by a similar shortfall in disinvestment proceeds,” she said.
Source: The Financial Express
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