India's direct tax kitty in this fiscal year so far has grown by only 5 percent. That is a far cry from the 17 percent target set by the union finance minister Nirmala Sitharaman during her budget speech. To make matters worse, Goods and Services Tax (GST) revenue growth at 6 percent is crawling as well.
Soumya Kanti Ghosh, group chief economic advisor at State Bank of India; MS Mani, Partner-GST, Deloitte India and Ketan Dalal, managing partner at Katalyst Advisors shared their views and outlook.
About budget estimates of GST collections, Ghosh said, “If we combine the GST collections and direct tax collections concerns, we are looking at a shortfall of around Rs 1 lakh crore and the GST targets could be lower by around Rs 50,000-55,000 crore and this could be in the direct tax proportion. However, the good thing is that it may not impact the headline fiscal deficit number, which is at 3.3 percent.”
"The slowdown in the economy is quite significant and as you rightly said it was about Rs 13 lakh crore comprising Rs 7,65,000 crore for the corporates and about Rs 5,69,000 crore for non-corporates which is individual partnerships etc. and the growth has been about 6 percent. But, if you look at the overall situation, whether it is non-banking financial companies (NBFCs) or autos or real estate or textiles or exports, there has been a significant slowdown," Ghosh said.
Mani said, "I would be a little optimistic on this front because of two reasons. In GST, the lower collections are a function of two factors that have happened. First, August figures slowed down and the other issue is last year when we kept reducing the rates, they were reduced on the understanding that the compliance base improves significantly."
"The total shortfall in the collections as of today is running around Rs 1 lakh crore and it could be a little higher. However, suppose we stick to the time being it would be Rs 1 lakh crore. First thing is that the RBI’s surplus transfer has been Rs 58,051 crore, that means another Rs 45,000 crore shortfall has to be met. The issue in the budget is pro-data expenditure adjustment could be made. For example, if you take the case of Prime Minister KISAN, the total budgeted amount is R 87,600 crore for 14.6 crore farmers in India. But if you look at the number of Kisan Credit Card (KCC) cards that is around 6.9 crore. So, the number of farmers, which we could reach this year digitally assuming it is at 8 crore, I am assuming that it will go at least Rs 1 crore higher than 6.9 crore so that means that at 6,000 crore, it is Rs 48,000 crore which makes the savings of around Rs 40,000 crore more. So that takes the figure close to Rs 1 lakh crore," Ghosh said.
"There is a possibility that the food subsidy could be frontloaded so that amount could be around Rs 15,000 to maybe Rs 20,000 crore so that makes the figure over Rs 1 lakh crore. next, there is always the possibility of expenditure rationalisation. If you look into the history of the last five years, there have been instances where expenditure has been cut, capital expenditure has been increased also. Hopefully, we may not have to walk down that path and possibly this type of expenditure rationalisation in terms of pro rata adjustments could just do the trick in the current fiscal apart from possible front load income food subsidy into the next year,” Ghosh added.
“If a rate cut significantly improves the consumption, yes, it should. But all the products that you mentioned to me and the factors impacting those products are not in respect of the higher tax rate. If there is a structural issue, which is there for some sectors, it could be at a global level or national level. I think they will need to address those issues rather than looking at tax cut as a panacea for taking care of all the consumption issues,” Mani further mentioned.
“Both from a corporate tax standpoint and from an individual tax standpoint, I think the way to go would be to cut rates, grow the pie and grow the economy. We are in September and my fear is that this year refunds will get held back which again will not be good for the industry,” Dalal said.