Revenue forecast model to project realistic targets

The finance ministry is mulling a revenue forecasting model. Finance Minister P Chidambaram has asked advisor Parthasarthi Shome and the revenue department to suggest a model for the purpose.

"The present thinking is rather rudimentary. We will see if we can have a fixed model," an official said.

Chidambaram had convened a meeting on the issue last week. The issue of putting in place a forecast model was also raised during the meeting with the chief commissioners of income tax earlier this year.

Some had highlighted the need for a more scientific method to fix realistic targets, against the present practice of fixing targets based on the previous year's achievements.

Officials said earlier this year, the department had sought a presentation from the International Monetary Fund on its method of forecasting growth rates. "The IMF made a presentation. But the same model cannot be used for fixing revenue targets," an official said.

The officials pointed out that the independent variable for the exercise was yet to be decided. "There is a view that one can take the gross domestic product as the independent variable," they said.

They added that the forecast exercise was more difficult in developing countries like India as there were frequent policy changes and tax revenue was an important source of revenue for the government.

Last year, the government had witnessed an overall growth of 20 per cent in tax collection due to an increase of 26 per cent in direct tax collection at Rs 1,32,725 crore and 16 per cent in case of indirect tax collection at Rs 1,71,131 crore.

The growth in both income and corporate tax during 2005-06 is targeted in excess of 30 per cent based on last year's performance.