But tax collection buoyancy has been slowing down since the last year, which calls for tightening slippages
In the past, a shortfall in tax receipts of the Union government vis-à-vis the budget estimate (BE) and excess of expenditure over BE led to high fiscal deficit (FD) year after year. To rein in FD, it often took recourse to non-tax receipts such as dividend from public sector undertakings (PSUs), proceeds from selling government shares in one PSU to another, transfer of surplus by the Reserve Bank of India (RBI), proceeds from sale of spectrum for telecom
services, etc.
This was unsustainable as reliance on non-tax receipts is unreliable. For instance, dividend from a PSU depends on a host of factors specific to the undertakings and there is no certainty that it will deliver a target amount. For instance, during 2017-18, ONGC, an upstream oil and gas exploration and production company in the public sector was asked to buy 51.11 per cent of government’s shares in Hindustan Petroleum Corporation (HPCL), helping it to
garner over `30,000 crore and,
thus, achieve its FD target. In the
process, ONGC was burdened with an extra debt.
Since 2021-22, the situation has changed drastically with tax collections exceeding the target by a substantial margin even as slippage in expenditure has continued unabated. The good thing is that the surplus in tax collection has offset the excess in expenditure over BE, thereby helping the government keep FD within the target – not having to rely much on the non-tax receipts.
During 2021-22, the gross tax revenue (GTR)—including total direct tax collection, proceeds from Goods and Services Tax or GST, customs and excise duty—net of refunds were `27,10,000 crore, which was higher than the budget estimate (BE) of `22,20,000 crore by a whopping `490,000 crore. The collection was even higher than the revised estimate (RE) of `25,20,000 crore (as given by FM Nirmala Sitharaman in the budget for 2022-23 on February 1, 2022) by `1,90,000 crore.
As per the Finance Commission (FC) formula 41 per cent of tax receipts of the Union government - excluding cess collections, which are not part of the divisible pool - are shared with states. After these mandatory transfers to states, the net tax revenue (NTR) of the Centre was around `18,50,000 crore, which was Rs 300,000 crore higher than the BE of `15,50,000 crore. It was even higher than the RE of `17,65,000 crore by `85,000 crore.
The excess of `300,000 crore in actual NTR of the Centre over the BE helped in making up for the slippage of about `284,500 crore in other areas of revenue and expenditure viz. proceeds from disinvestment in CPSUs: `161,500 crore (actual: `13,500 crore minus BE: `175,000 crore); fertilizer subsidy: `80,000 crore (actual: `160,000 crore minus BE: `80,000 crore); food subsidy: 43,000 crore (actual: `286,000 crore minus BE:
` 243,000 crore).
As a consequence, the FD for 2021-22 at 6.7 per cent of GDP (gross domestic product) turned out to be even lower than BE at 6.8 per cent. For 2022-23, Sitharaman set the GTR target `27,60,000 crore. Against this, the collection during the first six months of the year was `13,49,000 crore (this includes direct tax proceeds up to October 2, 2022, central GST collection up to September 30, 2022 and customs and excise duty or CED till August 31, 2022). Deducting devolution to states of `376,000 crore, NTR of the Centre works out to `973,000 crore against BE of `19,35,000 crore for the year.
Of the year’s targeted tax revenue, already, the government has collected a little over 50 per cent during the first half. Normally, the second half shows greater buoyancy in collection because of substantial pick up in economic activity during the
festival season (Oct-Nov) as also the fact that most persons pay their tax liability towards the year end [for instance, 16 per cent of the taxes (pre-devolution)
collected during 2021-22 were paid in March 2022]. Considering these factors and including September 2022 figure for CED, the GTR during 2022-23 is
estimated to be around `30,50,000 crore (but for the loss of revenue due to cut in central excise duty on petrol and diesel affected in May 2022 – estimated at `90,000 crore, this would have been even higher at `3140,000 crore), which is `290,000 crore higher than the BE. Correspondingly, the NTR of
the Centre, (post-devolution)
is expected to be about `21,00,000 crore - `165,000 crore more than BE.
According to Revenue Secretary Tarun Bajaj, the aim is for 30 per cent growth in direct tax collection against 16 per cent growth assumed previously. In that scenario, the additional GTR would be `425,000 crore. Correspondingly, the NTR would be `250,000 crore more.
On the other hand, the government faces massive slippage in the expenditure on various subsidies. On fertilizer subsidy, it is expected to spend `250,000 crore against BE of `109,000 crore, leading to excess of `141,000 crore. The food subsidy is likely to overshoot the BE `207,000 crore by about `130,000 crore, thanks to the continuation of the delivery of free foodgrains under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till December 2022.
Add to this `22,000 crore given to the state-run oil marketing companies (OMCs) to compensate them for the under-recoveries on supply of domestic LPG between June 2020 and June 2022 (during this period, against increase in the international prices of LPG by around 300 per cent, the OMCs were allowed hike of only 70 per cent in domestic LPG prices, leading to under-recovery), this leads to an additional subsidy payment of `293,000 crore.
In the non-tax receipt area too, against the target of `65,000 crore from proceeds of the disinvestment of government’s shareholding in Central Public Sector Enterprises (CPSEs), so far, it has realized only `25,000 crore. Considering that the big ticket sale of Bharat Petroleum Corporation Limited (BPCL) has been put on hold and sale of the LIC stake in IDBI is stuck, the year is expected to end with a shortfall of about `30,000 crore.
Overall, the government could be staring at a slippage of over `320,000 crore. Of this, around `250,000 crore is expected to be neutralized by excess tax collection over BE, leaving an uncovered gap of just `70,000 crore. This works out to a mere 0.25 per cent of the GDP. But, for the excess tax cushion, the slippage from the BE of FD (6.4 per cent) would have been 1.25 per cent.
The turnaround in tax collection is undoubtedly a creditable achievement of the Modi government. However, there is a dire need for prudent management of subsidies keeping in mind the fact that the tax cushion is not unlimited (during 2022-23, tax buoyancy – growth in collection against nominal GDP expansion – at 1 is much lower than 1.7 during 2021-22).
In major areas viz. food, fertilizers, fuel, substantial savings is possible by restricting coverage, cutting costs, improving efficiency, etc. For instance, free foodgrains under PMGKAY during April–December 2022 was uncalled for.
(The author is a policy analyst)
