Revenue hopes to ride the business cycle

Despite tax collections falling short by over Rs 11,700 crore in 2004-05, Finance Minister P Chidambaram has assumed they will rise by over 21 per cent in 2005-06.

Tax growth assumptions in the case of corporate taxes look feasible since a 33 per cent growth is assumed in 2005-06 as compared with 2004-05's 30 per cent growth. The fact that, this year, the FM has also lowered depreciation rates will also help increase the taxable profit.

Assumptions on income tax (30 per cent growth target compared with 2004-05's 23 per cent achievement) also look feasible, given the lower tax rates as well as the sharp increase in the number of taxpayers over the years thanks to the 1x6 scheme as well as the TDS computerisation.

The extension of the tax information network, or TIN, will also help get more high-net worth individuals into the tax net.

Moreover, as the Kelkar report on the fiscal responsibility and budget management shows (see accompanying graphic), the buoyancy of excise has fallen dramatically over the years. While 16.5 per cent of all non-petroleum industry GDP were collected as excise in 1980-81, this fell to 7.7 per cent in 2003-04.

Non-tax revenue, which was short of the 2004-05 Budget estimate, is projected to rise by 3.5 per cent to Rs 77,734 crore in 2005-06.

Interest receipts are projected to fall over 23 per cent to Rs 25,500 crore because of the debt swap scheme, under which the Centre estimates that high-cost debt amounting to Rs 1,03,642 crore will have been swapped by the end of the current fiscal year.

Further, the Twelfth Finance Commission's recommendations require that all central loans contracted up to March 31, 2004, be rescheduled into fresh loans for 20 years carrying 7.5 per cent interest. The scheme is, however, subject to states enacting fiscal responsibility laws.

The Centre has budgeted for a 13 per cent increase in dividend and profits received from PSUs, though dividend receipts from the Reserve Bank of India, banks and insurance companies is budgeted at the same level.

Dividend from non-financial PSUs is, however, estimated to rise sharply.

Also, receipts from economic services are projected to rise 23 per cent to Rs 27,325 crore, with revenue from communications, energy (through profit petroleum) and communications (as licence fees from telecom operators) projected to climb.