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Government does course correction on FY20 tax estimates, but target still ambitious

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Government does course correction on FY20 tax estimates, but target still ambitious

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Union Budget 2019 has done a course correction on direct taxes and GST estimates for FY20 after the interim budget missed the FY19 tax estimates by a huge margin. 

Government does course correction on FY20 tax estimates, but target still ambitious
Union Budget 2019 has done a course correction on direct taxes and GST estimates for FY20 after the interim budget missed the FY19 tax estimates by a wide margin.
CNBC-TV18 reported on July 2 that the government could moderate the FY20 tax targets in its full budget, which were first projected in the interim budget.
The new FY20 Direct Tax and GST targets were been scaled down by Rs 1.43 lakh crore in July budget, over the FY20 projections announced in the interim budget on February 1.
Direct tax target has been cut by Rs 45,000 crore to Rs 13.35 lakh crore for FY20.
While the GST target, inclusive of IGST and Compensation Cess, saw a cut of Rs 98,000 crore, the July budget has projected GST revenues at Rs 6.63 lakh crore for FY20 vis a vis Rs 7.61 lakh crore projected in the interim budget.
Looking at the current state of the economy, officials in the tax department are of the view that the new tax targets are still very ambitious, and a correction may be required during December-January this fiscal.
The March 31 Provisional Actuals of CGA, which captures the magnitude of FY19 tax estimates going awry, was the trigger for both the Central Board of Indirect Taxes and the Customs and Central Board of Direct Taxes to pitch for a cut in the FY20 tax numbers projected in the interim budget, to the new Finance Minister Nirmala Sitharaman after she assumed office in May.
Against the FY19 target of Rs 6.43 lakh crore set for GST, which was revised lower, the Centre collected Rs 5.81 lakh crore in FY19, a shortfall of Rs 62,000 crore.
Add to that, the government also missed its FY19 excise collection target by Rs 29,000 crore, mainly due to a cut in petrol and diesel duties in 2018, taking the total hit on indirect taxes to a massive Rs 91,000 crore in FY19.
On the direct taxes front, not only the government missed it’s higher Revised FY19 target of Rs 12 lakh crore by Rs 75,000 crore, the taxman failed to collect even the original budget estimate of Rs 11.50 lakh crore in FY19, a first in many years.
Faced with a massive tax shortfall of Rs 1.73 lakh crore, and the prospect of a major slippage on the 3.4 percent fiscal deficit target, the government has put a brake on expenditures.
According to the Provisional Actuals of CGA, expenditure compression was to the tune of Rs 1.46 lakh crore, almost 6 percent of the FY19 Budget size of Rs 23.11 lakh crore.
So much so, the govt took recourse to Public Accounts to allow Rs 70,000 crore to the FCI to settle the food subsidy bill, as cash payment would have caused a major slippage in the fiscal deficit target. Borrowing from Public Accounts doesn’t reflect in the budget as the money doesn’t come through the Consolidated Fund.
Looking at the trend of the last fiscal, the government has kept the FY20 Budget size (read Expenditure budget) almost unchanged at Rs 27.86 lakh crore against the earlier FY20 estimate of Rs 27.84 lakh crore in the interim budget.
However, the course correction in tax estimates is not very evident in the July Budget, as the government has continued to use the FY19 Revised Estimates for the new FY20 projections.
This is because, firstly, the provisional actuals of CGA are unaudited data, and secondly, the precedent always has been to use previous fiscal revised estimates as the base to project the new budget estimate, whenever there is a switch from an interim budget to a full budget.
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