Tax collection to grow 14% a year

12TH FINANCE COMMISSION REPORT/ THE FIVE-YEAR FORECAST

The Rs 109,199 crore excise collection target for 2004-05 is not achievable.

The 12th Finance Commission has projected a compounded annual growth rate (CAGR) of 14 per cent in the Centre's gross tax revenue, while the central government's spending is expected to record a CAGR of around 10 per cent over 2005-2010.

With these growth rates the Centre's fiscal deficit and revenue deficit reduction targets will be met in line with the Fiscal Reforms and Budget Management Act.

The finance ministry had projected a 20 per cent growth in corporation tax and income tax, and a 10 per cent rise in Customs and excise.

The commission, however, projected a lower growth as it was of the opinion that the implementation of tax reforms would take time as it involved far-reaching changes, also requiring the consent of the states.

The commission has also reassessed the Centre's projections on excise collections for the current fiscal saying the Budget Estimate of Rs 109,199 crore did not appear achievable.

The expenditure is expected to come down due to lower subsidies, falling interest rate, but a 7.5 per cent rise in expenditure on police forces has been provided for. Defence expenditure is sought to be reprioritised in favour of capital expenditure.

As per the commission's estimates, based on post-debt relief projections, corporation tax is projected to grow 18.1 per cent to Rs 203,509 crore in 2009-10 over the 2004-05 estimate of Rs 88,436 crore. Similarly, income tax collections are estimated to grow 16.8 per cent.

Customs duty CAGR is estimated to grow 7.2 per cent to Rs 76,802 in 2009-10, while the service tax is estimated to increase over 20 per cent. Service tax collections are estimated to increase to Rs 36,701 crore in 2009-10.

"We feel the service tax would have a much higher buoyancy than projected by the central government because of significant growth in the service sector," the report tabled in Parliament said.

As per the commission's estimates, the Centre's tax-GDP ratio is projected to improve by 0.92 percentage points by 2009-10 compared to the 2004-05 level and 1.68 percentage points over the level in 2003-04. The commission has assumed a nominal growth of 12 per cent over its reference period.

But the Centre's non-tax revenue as a percentage of GDP is not expected to rise substantially and will reach 2.45 per cent of the GDP in 2009-10 compared to 2.21 per cent in 2004-05.

The gross revenue receipts of the Centre is projected to rise from 12.16 per cent of the GDP in 2004-05 to 13.33 per cent in the terminal year, while net revenue receipts are projected to increase to 10.39 per cent of the GDP from 9.55 per cent of the GDP.

The commission has sought greater discipline in the area of loans to public sector undertakings and said the government should ensure higher dividend receipts from the state-owned companies as some of them did not follow government directives.

The commission has also sought a review of the railways' dividend policy and said licence fees from telecom could be increased. Disinvestment receipts are assumed at Rs 4,000 crore during the five-year period .

The fiscal deficit is estimated to reduce to 3 per cent of the GDP in line with the projections from 2008-09 in line with the targets laid down in the FRBM Act. Revenue deficit is assumed at zero, while primary deficit is estimated at 0.15 per cent.