India’s Tax Collection Growth In April-June At Lowest In A Decade
India’s gross tax collection growth in the first three months of the ongoing fiscal hit a 10-year low in a year where the government has set a lofty tax target to spend its way out of a slowing economy.
Gross tax revenue for the April-June period of 2019-20 grew 1.36 percent year-on-year to Rs 4,00,421 crore, according to data released by the Controller General of Accounts on Wednesday. The growth in the corresponding period last year was 22.4 percent.
That’s the slowest pace at which government tax collections have grown in the first three months of a fiscal since 2009-10, when they had contracted 11.4 percent.
The slowdown in tax collections comes after the Narendra Modi government budgeted an ambitious tax target despite a significant shortfall last year. The government expects to earn Rs 24.6 lakh crore in taxes in 2019-20—an 18 percent rise over last year. It was hoping to earn Rs 22.7 lakh crore in 2018-19, a rise of 18.4 percent. However, it could only collect Rs 20.8 lakh crore, representing a much lower 8.4 percent growth.
To be sure, this doesn’t necessitate that the government will miss its target again since bulk of the direct tax collections happen in the final months of a financial year.
Still, sluggishness in tax revenue has 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 in 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.”