Tax cuts unlikely! Dismal revenue figures belie income tax cut hopes

Even as the markets are abuzz with the talks of income tax rate cuts and abolition of long-term capital gains tax, the government finances for the first half paints a grim picture with the net tax revenue growing at 4.2 per cent year-on-year.

At the end of the September 2019, the net tax revenue was at Rs 6.07 lakh crore compared to Rs 5.83 lakh crore a year ago.

"The worrying trend is dismal performance of tax revenue, on quarterly basis, net tax revenue growth declined to 3.0 per cent in 2QFY20 from 6.0 per cent in 1QFY20, leading to 1HFY20 net tax revenue growth of 4.2 per cent. Net tax revenue has to grow 42 per cent to achieve FY20 budget target of Rs 16.5 lakh crore, which appears to be a daunting task," says Dr. Devendra Pant, Chief Economist, India Ratings and Research (Fitch Group).

Gross tax revenue in the first half of the current fiscal is Rs 9.2 lakh crore, 37 per cent of the current year target of Rs 24.6 lakh crore. Gross tax revenue includes the states' share of the tax. States receive 42 per cent of the total gross tax revenue.

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Corporate tax collection

Corporate tax collection till September is at Rs 2.5 lakh crore just an increase of 2.2 per cent over previous year. This is just 33 per cent of the current financial year target of Rs 7.66 lakh crore, which is 15.5 per cent higher than previous year collection of Rs 6.63 lakh crore.

The government in September 2019 slashed corporate tax rates from 30 per cent to 22 per cent with effect from the current financial year. This saw many companies shifting to lower tax rate. As per government's own estimated, the move may put a dent of Rs 1.45 lakh crore to the government exchequer.

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Income Tax collection

Income Tax collection till September 2019 is at Rs 2.13 lakh crore, a growth of over 8.8 per cent over the previous financial year. So far the government has been able to mop up 37 per cent of the Rs 5.7 lakh crore target for the current financial year.

Meanwhile, the overall revenue of the government jumped 18 per cent to Rs 8.16 lakh crore partly because of the one-time payment of Rs 58,000 crore by the Reserve Bank of India (RBI). Non-tax revenue collection till September is Rs 2.09 lakh crore, which is 67 per cent of the current year target of Rs 3.13 lakh crore.

Fiscal deficit in first half was Rs 6.52 lakh crore, which 92.6 per cent of full year target. This is similar to last year (92.2 per cent). "The fiscal deficit trend is bit worrisome. Had there not been one-time windfall gain from the RBI, the fiscal deficit would have looked much worse," says Pant of India Ratings.

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