Government is expected to show a 14% rise in tax revenues going by its target of a tax to GDP ratio of 11.6% for fiscal 2018-19. Tax to GDP ratio was pegged at 11.3% for fiscal 2017-18, and given that GDP growth has come off from budgeted forecasts of 11.88% (nominal), the tax collections may be be fully achieved.Government is likely to target a nominal GDP growth of around 12% for fiscal 2018-19.
On the tax front, the major changes expected are:
1. Rationalisation of GST rates and inclusion of petroleum products under GST
2. Extending horizon for long term capital gains from one to three years for equities
3. Tweaks in corporate tax rates to lower the rates marginally
The government will push for a larger rise in non tax revenues through disinvestments and higher dividends from PSU’s given bank recapitaiisation and a general improvement in economic conditions that will lead to higher profitability for PSU’s. Spectrum auctions targets are likely to be low given that Telecom sector is still in deep debts.
How does the Revenue Picture Look so Far in 2017-18?
Revenues have fallen short of expectations on the back of initial GST implementation issues, lower dividend from RBI and PSU’s and no spectrum auctions.
Government gross tax receipt as of November 2017 came in at Rs 10565 billion, gross tax receipts represent 55% of the total Budget estimates of gross tax receipts for fiscal 2017-18 (Rs. 19115 Billion). Direct tax collections have risen by 18.7% to Rs 6890 billion as of 15th January 2018 when compared with the corresponding period of last year, The growth has been particularly good in the collections under Corporate Income Tax (CIT), CIT Collections increased from 10.8% in Q2, to 17.4% in Q3 and to 18.2% as of 15th January 2018.
GST implementation brought Excise Duty and Service Tax under its fold. GST Tax collection from July 2017 to November 2017 was around Rs 4392 billion. Custom tax revenue fell by 30% to Rs 1028 billion when compared with corresponding period of last year. Wealth Tax collection rose up by 32% to Rs 203 billion in November 2017 from Rs 154 billion in November 2016
On the revenue estimate, direct tax collections up to 15th January 2018 shows net collections are at Rs. 6890 billion, which is 18.7% higher than the net collections for the corresponding period of last year. The net Direct Tax collections represent 70.3% of the total Budget Estimates of Direct Taxes for fiscal 2017-18 (Rs. 9800 billion).
On the indirect tax front, the government has not budgeted for GST implementation this year. On revenue estimate, Indirect tax collections up to November 2017 shows net collections are at Rs. 6536 billion including GST collection. The net indirect tax collections represent 70% of the total Budget Estimates of indirect taxes for fiscal 2017-18 (Rs. 9269 billion).
On the Non-Tax Revenue front, total non-tax revenues are budgeted to grow by negative 13.7%, largely on the fall in spectrum and dividend revenues. On Revenue estimate, RBI approved the transfer of surplus to the Government of India amounting to Rs 306.59 billion for the year 2017-18 as against Rs 658.76 billion for the year 2016-17, which is a fall of 53.46% from fiscal 2017-18 budgeted levels of Rs 605 billion. Spectrum sale did not happen in this fiscal year, while revenue from disinvestment wass Rs 543 billion as of January 2018, the government has budgeted for Rs 725 billion.
Disinvestment revenues are likely to exceed budget estimates for this fiscal year while RBI could make up part of the dividend shortfall on demands by the government.
Budget Estimates 2017-18
Gross Central Government Tax Revenues to GDP Ratio has increased to 11.3% of GDP in fiscal 2016-17 from around 10% levels over the last three years. The government has budgeted for a tax to GDP ratio of 11.3% for fiscal 2017-18 in its Union Budget 2017-18 that was presented to Parliament on the 1st of February 2017. Tax to GDP ratio is expected to rise to 11.6% and 11.9% over the next two years.
Demonetization has helped tax to GDP ratio rise in fiscal 2016-17 as also the Income Declaration Schemes. The government through its Benami Transaction Act is looking to crack down on illegal deposits post demonetisation. Focus towards digitizing payments, curbing cash transactions to a maximum of Rs 300,000 and data mining of depositors is expected to increase the number of individuals filing tax returns.
Introduction of GST too will see rise in indirect tax collections over the next few years.
Government has budgeted for a 12% increase in total taxes with corporation tax rising by 15.7% and personal income tax rising by 8.8%. Tax rates for companies with turnover of Rs 500 million has been cut to 25% from 30% while individuals in the tax slab of Rs 250,000 to Rs 500,000 will pay lower tax of 5% from 10%. With exemptions and tax benefits, individuals earning Rs 500,000 and less would not have to pay tax at all. Government is expecting that economic growth would lead to businesses and households earning more and pay more taxes.
On the indirect tax front, government has not budgeted for GST implementation this year. Excise duty has been the saviour for the government with growth of 53% and 36% over the last two years and is budgeted to grow at 5% this year as duty has not been hiked for fuel and other goods this year, unlike the last couple of years. Service tax is budgeted to grow at 11% against 18% growth last year, again due to hike in tax last year and no hike this year. Customs duty grew by just 3.6% last year and with trade reviving, is expected to grow at 12.9% this year.
GST implementation would bring Excise Duty and Service Tax under its fold.
On the Non Tax Revenue front, dividends from RBI and PSU’s grew by 29.6% largely on the back of the government forcing PSU’s to declare one time dividend from their cash surplus. Income under this category is budgeted to grow at negative 7% in fiscal 2017-18. Spectrum auctions and license fees revenues were below budget estimates for last fiscal year but were higher by 40% while for this fiscal year, revenues are expected to fall 44% as no large spectrum auctions are slated to be held.
Disinvestment targets for last fiscal were not achieved but with listing of Railway arms, IRCTC, IRFC, IRCON and focus on more CPSE ETF sales, revenues from this category is budgeted to grow 59% this fiscal.
Total non tax revenues is budgeted to grow by negative 13.7% largely on the fall in spectrum and dividend revenues.
