Budget 2023: Riding on robust collections, govt realistic on tax target

The budget pegs tax revenue at Rs 33.6 trillion, which is higher by 10.4 per cent over Rs 30.4 trillion projected in revised estimates for the current financial year (FY23)

The government has kept the revenue target “realistic” for financial year 2023-24 (FY24) in sync with nominal gross domestic product (GDP) growth of 10.5 per cent.

The Budget pegs tax revenue at Rs 33.6 trillion, which is 10.4 per cent higher than the Rs 30.4 trillion projected in the Revised Estimates for the current financial year (FY23).

The government had earlier projected a conservative target of Rs 27.5 trillion for FY23.

Of total revenue receipts for FY24, the direct tax component is estimated at Rs 18.23 trillion. This includes corporation tax of Rs 9.2 trillion and income tax of Rs 9 trillion. In FY23, the Revised Estimates pegged revenue receipts at Rs 16.5 trillion, higher than FY23 BE of Rs 14.2 trillion.

Indirect tax collections, which mainly comprise of Customs and excise and Goods and Services Tax (GST), excluding state GST, are projected at Rs 15.29 trillion for FY24. This is an increase from Rs 13.85 trillion pegged in Revised Estimates of FY23.

“The Revenue Estimates in the Budget do not assume buoyancy greater than 1 for the coming financial year. Gross taxes are expected to grow by the same 10.5 per cent by which we have estimated the GDP to grow, which is slightly lower than the figure implied by the Economic Survey,” said Finance Secretary TV Somanathan during the post-Budget briefing.

The senior bureaucrat said that if the momentum continues next year, then buoyancy could be more than 1. But we have taken a conservative assumption, he said.

“Many of our expenditure increases are on discretionary spends. We have kept a very tight lid on the irreducible types of expenditure. And, therefore, there is room in the Budget both on the revenue and on the expenditure side for us to reach that fiscal deficit target by 2025-26,” Somanathan added.

“Gross tax revenue is projected to grow at 10.4 per cent in Budget Estimate 2023-24 over Revised Estimate for 2022-23. Both, the direct and indirect tax receipts are individually estimated to grow at 10.5 per cent and 10.4 per cent, respectively. The overall tax buoyancy is estimated at 0.99. As the tax collection from the goods and service tax stabilises, it is likely to give a boost to indirect tax collection with an estimated GST buoyancy of 1.14 in the ensuing year,” he added.

In BE 2023-24, it is estimated that direct and indirect taxes will contribute 54.4 per cent and 45.6 per cent, respectively, to gross tax revenue, according to the fiscal consolidation document presented in the Parliament along with the Budget on Wednesday.

The tax to GDP ratio is estimated at 11.1 per cent, which is on par with the RE for 2022- 23. Tax collection in BE 2023-24 is expected to be in line with the growth of nominal GDP. In BE 2023-24, the tax revenue (net to Centre) is projected at Rs 23.31 trillion, which is around 11.7 per cent more than Rs 20.87 trillion of RE 2022-23, it said.

Direct and indirect taxes recorded a year-on-year growth of around 23.5 per cent and 8.6 per cent, respectively, in the first eight months of the current fiscal year, which was substantially higher than the budgeted growth of 13.6 per cent and 5.3 per cent, respectively. It further said that the momentum in the domestic economy led to a significant collection of GST.

After plummeting during pandemic-affected year FY21, revenue receipts registered robust growth in FY22, driven by a rebound in the collection of all major direct and indirect taxes, except for excise duties.