Coronavirus fallout: Govt likely to see contraction in tax revenue in FY20

Will the Central government's tax revenue see a contraction in 2019-20? The recently announced government finance data till the month of February shows that central government's tax collection in 2019-20 might fall short of collection in the previous financial year, especially with economic activities getting disrupted in the second half of March due to COVID-19 related restrictions and lockdowns.

Till February, government's gross tax collection was Rs 16.78 lakh crore, Rs 4 lakh crore short of 2018-19 full-year collection of Rs 20.80 lakh crore. This Rs 4 lakh crore has to be collected in the one month (March) remaining in the current financial year. Last year, the total tax collection in March was Rs 3.88 lakh crore.

Chances of a higher tax collection in March this year than in previous year look difficult as coronavirus-related restrictions have severely disrupted business activities in the second half of March this year. Even if March were a normal month, the trend so far in the financial year does not look too good in terms of tax collections primarily on account of sharp cuts in corporate tax rates in August last year and overall slow growth of the economy.

Since August last year, the monthly tax collection has been lower than the corresponding month in previous year except for in February. In August 2019, the monthly tax collection was Rs 1.22 lakh crore compared to Rs 1.29 lakh crore in previous year. In September 2019, the monthly tax collection was Rs 2.59 lakh crore compared to Rs 2.72 lakh crore in the previous year. In December 2019, the difference widened since tax collection in the month (Rs 2.09 lakh crore) was lower by around Rs 50,000 crore than in the corresponding month in the previous year.

In fact, in April 2019-February 2020, the total collection of Rs 16.78 lakh crore was lower than Rs 16.92 lakh crore during the same period previous year.

The government expects the tax collection in 2019-20 to be Rs 21.63 lakh crore. The government had in last year's budget estimated Rs 24.6 lakh crore, which they later revised downward to Rs 21.63 lakh crore.

Till February, the government's fiscal deficit (at Rs 10.36 lakh crore) was 135% of the revised target of Rs 7.67 lakh crore. If the government fails to meet its revised tax revenue target of Rs 21.63 lakh crore, it might find it difficult to meet the fiscal deficit target of 3.8% (of the GDP) for the current financial year.

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