Consumption, high inflation to boost GST; corporate tax to improve
By Priyansh Verma
Despite sharp contractions of over 10% in the collections of both corporate tax and excise duties in first four months of FY24, the Centre could still be able to meet its Budgeted gross tax revenue (GTR) target without any increases in tax rates, analysts feel. A stepping up of the tax collection drive, high inflation and robust consumption will help meet the budget estimate (BE) of GTR, they reckon.
However, any significant cut in tax rates – the chances of rate reductions are high in case of excise duties and cesses on auto fuels with a clutch of assembly polls around the corner and general elections not far away – could upset the budget maths in terms of GTR. Any cut in auto fuel cesses will have a big impact on the Budget maths, as proceeds of these imposts are drawn by the Centre alone, and not shared with states.
“On the whole, the total tax collections would go according to plan with GST collections likely going to be more than targeted, due to increase in inflation as well as consumption,” said Madan Sabnavis, chief economist, Bank of Baroda. “In case of corporate tax collections, there should be a turnaround as companies are increasing their prices, and hence profits under low raw material cost conditions,” he said.
In April-July, the GTR (post-refunds mop-up before devolution to states) were at Rs 8.94 trillion, just 2.8% higher than the corresponding period of last year, according to data from the Controller General of Accounts. In order to meet the Budgeted Rs 33.61 trillion figure in 2023-24, which is up 10.1% from the Rs 30.54 trillion collected in 2022-23, gross tax collections will have to rise 12.9% year-on-year in August-March. In August-March 2022-23, GTR had risen by 8.5%.
Corporate tax collections in April-July this year were at Rs 1.76 trillion – 10.4% lower on year, while central GST collections were up 16.6% on year at Rs 2.74 trillion rupees. GST collected from compensation cess in April-July was also higher 10.2% on year at Rs 46,316 crore.
“GST collections are now regularly crossing Rs 1.6 trillion mark every month, which is higher than what was estimated for FY24,” said Pratik Jain, partner, Price Waterhouse & Co LLP. “Double digit growth over previous year’s corresponding collection is encouraging and with festive season on the anvil, it’s likely to increase further…initiatives such as Mera Bill Mera Adhikar which nudges the common citizens to create a more compliant ecosystem should also help the government in plugging the tax leakages and adding to collection.”
Jain expects GST collections by the Centre -which includes Central GST, Integrated GST, and GST compensation cess—to cross Rs 10 trillion in FY24, higher than Rs 9.57 trillion pegged in the Budget.
The Mera Bill Mera Adhikaar scheme, designed by the Central Board of Indirect Taxes and Customs, incentivises consumers on uploading genuine business to consumer (B2C) invoices for purchases of goods and services attracting GST. The scheme was launched as a pilot in Assam, Gujarat, Haryana, Puducherry, Dadra Nagar Haveli and Daman & Diu, on September 1.
The Wholesale Price Index, which has been in the deflationary zone in the first four months of the current fiscal year is likely to turn inflationary post September, aiding nominal GDP growth and tax collections going forward. “Whole sale inflation is expected to move in inflationary mode from deflationary mode from September/October 2023 and this would translate in higher nominal GDP growth and thus tax collections are expected to be better in second half of FY24,” said DK Pant, chief economist, India Ratings and Research. India’s nominal GDP growth in April-June quarter was at 8.0%, lower than 10.4% in January-March.
CORPORATE TAX SHORTFALL
Barring 2020-21, the Covid-19 pandemic year, a 10.4% year-on-year contraction in corporate tax collections in April-July was steepest in at least 10 years. Experts say the decline could mainly be attributed to the statistical effect of high base, as corporate tax collections in the same period of last year was up 34.7% year-on-year.
“Post-Covid-19, we saw a K-shaped recovery in several sectors…most of the recovery was price-lead and not necessarily volume-lead (in 2022-23). Since last year, was the first year which opened all sectors after, after the pandemic waned, demand shot up, and tax collection spiked,” said Sudhir Kapadia, partner, EY India Tax & Regulatory Services.
“Corporate taxes is a function of advance tax paid, it’s based on the estimated income which corporate India is expected to make this year. Corporates are being cautious this year about estimating their income this year, because there will be elections this year…and there is an El-Nino phenomenon which is a concern. However, the tax collections will likely pick up later this year and tax collections would mostly meet the Budget estimate,” Kapadia said.
Meanwhile, excise duty collections in April-July also recorded a contraction of 10.5%, but that was mainly due to cut in excise duty of petroleum products, which happened last year in May to tame inflationary pressures.
Source:financialexpress.com