Modi govt confident of achieving tax target, but numbers belie that confidence

Even as GDP growth continues to slow down quarter-after-quarter, the government seems to be confident that it will achieve the revised tax collection targets for the current financial year.

"Yes, we are very confident that we will achieve the tax collection target. You have to trust the budget numbers, they are arrived after proper assessment of the situation," said a senior finance ministry official last week.

While the Finance Ministry is sanguine about achieving the tax collection targets, the numbers so far do not exude same confidence.

The government has revised its gross tax collection target for the current financial year from Rs 24.61 lakh crore to Rs 21.63 lakh crore, a downward revision of Rs 2.97 lakh crore, or 12%.  This sharp downward revision is largely on account of cut in corporate tax collection targets, which have been lowered by Rs 1.55 lakh crore, and centre's part of the GST collection by Rs 51,000 crore.

Despite sharp downward revisions in tax revenue numbers, economists and analysts believe even this number is difficult to achieve. Some people have raised concerns that gross tax revenue numbers could be lower than previous year. The revised number, however, is higher by around 4% than the actual collections in the previous year (2018-19), when gross tax revenue was Rs 20.8 lakh crore.

But if numbers from April 2019-January 2020 period are seen, the gross tax revenue collection (Rs 15.31 lakh crore) has been 2% lower than Rs 15.63 lakh crore in the corresponding period in 2018-19. This means tax collection in the remaining two months have to be significantly higher.

"Center's gross tax revenues show a contraction of 2% during April-January FY20, requiring a high growth of nearly 38% in the remaining two months of the fiscal year for realising the revised estimates," says D.K. Srivastava, Chief Policy Advisor, EY India.

The monthly GST collection in February has been Rs 1.05 lakh crore, short of the revenue department's target of Rs 1.10 lakh crore for the month. The revenue department had issued a press note in December saying that it is aiming for a collection of Rs 1.10 lakh crore each in January and February and Rs 1.25 lakh crore in March. While in January the GST collection did cross Rs 1.10 lakh crore, it has come down in February.

And given the Corona virus scare impacting businesses in February, and lower GDP numbers expected in the fourth quarter when growth is likely to fall further to 4.6%, it is unlikely that GST collections in March could be anywhere closer to Rs 1.25 lakh crore. GST collection in March 2019 was Rs 1.06 lakh crore.

"We think there could still be some shortfall (in gross tax collection.) We think the central government's GST collection could show a 4.4% increase (over the previous year) compared to the revised target of a 5.3% as per the revised estimates," says Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC.

Other major components like customs duty and central excise also do not give much hope with both imports and manufacturing sector showing contraction. Till January 2020, both customs duty and central