In the upcoming interim budget scheduled for February 1, the Centre is expected to budget a conservative 9-11% rise in net tax revenue receipts for the fiscal year 2025, compared to the current fiscal year’s budget estimate.
According to ET, the estimated net tax revenue for the Centre in FY25 is likely to hover around Rs 25-26 lakh crore. In the ongoing fiscal year, the Centre had initially budgeted Rs 23.3 lakh crore for net tax revenue.
Insiders familiar with the details told the financial daily that the revised estimate for net tax revenue in the current fiscal year, after state devolution, is likely to align closely with the initial budget estimate. There may be potential shortfalls in excise duty collections, projected to be around Rs 45,000 crore below the Rs 3.39 lakh crore budgeted target.
For the upcoming fiscal year, the excise duty target is anticipated to be Rs 3 lakh crore. A senior official said that the target for net revenue receipt for the next fiscal year will be modest, ranging between 9-11%. The official attributed this partly to the already elevated base. Over the past two years, tax receipts have exceeded revised estimates.
The government has set its gross tax revenue goal at Rs 33.6 lakh crore for FY24, with state devolution expected to reach Rs 10.2 lakh crore. Following devolution, the Centre’s net tax receipt is anticipated to reach Rs 23.30 lakh crore, marking an 11.7% increase over the revised estimate in FY23.
Some independent assessments forecast a more substantial tax surge, such as Goldman Sachs projecting a 15% growth in income taxes and corporate tax, and an 11% increase in GST for FY25.
The decision to set a modest tax target is seen as providing fiscal flexibility in case collections outperform expectations. The official said it is better to keep it understated considering that the global crisis is far from over.
As of January 10, India’s net direct tax collections had reached Rs 14.7 lakh crore, reflecting a robust growth of 19.4% compared to the same period in FY23. This represents over 80% of the budgeted direct tax target of Rs 18.22 lakh crore.
The Centre is likely to budget a modest 9-11% increase in net tax revenue receipts in FY25 over the budget estimate for the current year in the February 1 interim budget.
In absolute terms, the net tax revenue of the Centre is expected to be pegged at ₹25-26 lakh crore.In the current fiscal, the Centre has budgeted ₹23.3 lakh crore net tax revenue
The revised estimate for net tax revenue receipt in the current fiscal year, after devolution to states, will be at about the same level as the budget estimate, considering the likely shortfall in excise duty collections, people aware of the details told ET.
The excise duty target for next fiscal is likely to be at ₹3 lakh crore. In the current fiscal year, excise duty collections are expected to fall short by ₹45,000 crore from the budgeted target of ₹3.39 lakh crore.
The target for net revenue receipt for the next fiscal year will be modest, ranging between 9-11%,” a senior official told ET, adding that this is also on account of the already high base. Tax receipts have exceeded revised estimates in the last two years
The government has budgeted its gross tax revenue at ₹33.6 lakh crore for FY24. Devolution to the states from the Centre’s tax revenue is estimated to be ₹10.2 lakh crore in FY24.
After devolution, the Centre’s net tax receipt is expected to be at ₹23.30 lakh crore, which is 11.7% higher than the revised estimate in FY23.
Independent assessments estimate a sharper rise in taxes. According to the latest report by Goldman Sachs, income taxes and corporate tax are expected to grow by 15% in FY25, and GST is expected to record a jump of 11%.
A modest tax target will give fiscal headroom if the collections are better. “It is better to keep it understated considering that global crisis is far from over,” the official said.
India’s net direct tax collections touched ₹14.7 lakh crore by January 10, reflecting a growth of 19.4% over the same period of FY23 and crossed 80% of the budgeted direct tax target of ₹18.22 lakh crore.
With the economy continuing to grow at a robust pace, the government is of the view that fiscal consolidation needs greater attention, they said. According to the first advance estimate, India’s gross domestic product ( GDP ) is forecast to grow 7.3% in FY24, bettering the preceding fiscal year’s 7.2%. FY24’s budget had raised spending by 14.1% over the FY23 budget estimate – to ₹45 lakh crore. FY24 expenditure growth was up 7.5% over the provisional number for the last fiscal year.
CareEdge expects the government to continue its focus on capital expenditure ( capex ) and fiscal consolidation in FY25. The analytics firm also predicts a slight fiscal deficit slippage this year on lower nominal growth.
Here are the five key highlights of Interim Budget 2024 expectations as predicted by Care Edge
CareEdge expects the government to stick to its capex target of ₹10 lakh crore in FY24 and raise it further by around 10 per cent to ₹11 lakh crore in FY25. The capex to total expenditure ratio is expected to inch up marginally to around 23 per cent in FY25, according to the firm. The government has been focussing on public infrastructure to drive capex growth
Adhering to its glide path to attain a fiscal deficit of 4.5 per cent by FY26, the projected fiscal deficit for FY25 is set at 5.3 per cent of the gross domestic product ( GDP ). CareEdge anticipates a nominal GDP growth of 10.7 per cent in FY25, coupled with a tax buoyancy of 1.2.
‘’In FY25, the total expenditure is expected to rise by six per cent, primarily fuelled by a 10 per cent increase in capital expenditure, complemented by a more modest five per cent growth in revenue expenditure,” said the credit rating agency.
The projection for nominal GDP growth indicates a slowdown from the budgeted 10.5 per cent YoY of the previous year to 8.9 per cent, as per the first advanced estimate. This deceleration is primarily attributed to deflation in the whole price index.
’Consequently, a slight slippage of 10 basis points, when viewed as a proportion of nominal GDP, is anticipated. This adjustment prompts a revision in our FY24 fiscal deficit projection to six per cent of GDP,” said CareEdge.
According to data from the Comptroller and Auditor General ( CAG ) for the April-November period, direct tax collections have surged at a rate of 24.8 per cent YoY, significantly outpacing the full-year budgeted growth of 10.5 per cent.
In contrast, the gross indirect tax collections recorded a more modest growth of 5.1 per cent YoY during the same period, falling short of the full-year budgeted growth of 10.5 per cent. However, driven by the strong performance of the direct taxes, CareEdge expects the gross tax collection to rise by 11.9 per cent, higher than the budgeted growth of 10.4 per cent, exceeding the budgeted amount by about ₹45,000 crore.
While indirect taxes are anticipated to fall short by approximately ₹49,000 crore in FY24 from the budgeted amount, the direct tax collections are expected to surpass the budgeted value approximately by a significant ₹94,000 crore, reflecting the strong performance of direct tax components,” said CareEdge.
While the government is expected to meet its capital expenditure target of ₹10 lakh crore, CareEdge projects some slippages in the revenue expenditure to the tune of about ₹73,400 crore. Last month, the government approved the first supplementary demand for grants, amounting to Rs. 1.29 lakh crore.
Taking into consideration the savings from another scheme worth ₹70,900 crore, the net additional outlay would be ₹58,400 crore. The additional funds were directed toward food subsidies, fuel subsidies, fertilizer subsidies, and Mahatma Gandhi National Rural Employment Guarantee Act ( MNREGA ).
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