Budget 2019: India Sets Another Lofty Tax Target Despite Shortfall Last Year 

India projected an aggressive tax revenue target for 2019-20 even after the growth in collections in the previous fiscal rose at the slowest pace since Prime Minister Narendra Modi first came to power.

The estimate for gross tax revenue for 2019-20 was revised to Rs 24.6 lakh crore from 25.5 lakh crore announced in the interim budget in February, according to the Union Budget documents. That’s an 18 percent rise over the the tax collected in 2018-19, as per provisional actuals in the Economic Survey—much higher than the 13.5 percent growth the government had estimated in February.

The net tax revenue for FY20 is estimated to be at Rs 16.49 lakh crore compared with Rs 17.05 lakh crore estimated in February. That too is a higher growth rate of 25.2 percent over the provisional actuals of FY19.

The revision in estimates comes after a year of dismal tax collections. In 2018-19, the government was hoping to earn Rs 22.7 lakh crore in gross tax revenue, an 18.4 percent increase over the previous year. This was revised lower to Rs 22.48 lakh crore—a rise of 17.2 percent. The provisional numbers for 2018-19 show that it was only able to collect Rs 20.8 lakh crore, representing a much lower 8.4 percent growth. That’s the slowest growth in gross tax revenue under the Modi government.

Bulk of this shortfall has come as the Goods and Services Tax continues to undershoot its monthly targets. GST revenue in 2018-19 fell short of the budget estimates by 16 percent, according to the Economic Survey 2018-19.

Still, the government remains confident of improving its GST collections. It expects to earn Rs 6.63 lakh crore from GST, compared with Rs 5.49 lakh crore in 2018-19.

Sluggishness in tax revenue has also meant that India’s gross tax collection as a percentage of GDP fell below 11 percent in 2018-19 for the first time in three years. Likewise, the net tax revenue-to-GDP ratio too has declined to less than 7 percent for the first time in the same period.

Lower tax revenue estimates in FY20 will reduce the room for spending to spur growth and boost the farm sector. More so when the government deferred its fiscal deficit target for the third straight year. It expects to keep the deficit at 3.3 percent of the GDP in 2019-20.

“Given lower tax revenue, we see higher probability of a fiscal slippage if the government does not reduce expenditure or explore further sources of receipts,” analysts at Kotak Mahindra Bank wrote in a pre-budget note. “This will be the most significant threat to the fiscal math.”