|X's previous Budget was criticised for being overly optimistic in its revenue projections. Those concerns have now been validated with the Centre's gross tax collections falling short of the budgeted target by Rs 3 lakh crore in 2019-20. This time around, the Centre has scaled down its revenue projections for 2020-21 However, given the sharp drop in tax buoyancy this fiscal year, and continuing uncertainty over the state of the economy, the revenue projections for the upcoming year do seem aggressive. The risks stem from the possibility of direct taxes and GST collections falling short and the ambitious disinvestment and non-tax revenue targets.|
|The Union Budget for 2020-21 has assumed gross tax revenue growth at 12 per cent. To achieve this, it has pegged direct taxes to grow at 12.7 per cent. This is far too optimistic. Direct taxes are likely to grow by only 2.9 per cent this fiscal as corporate tax collections have fallen by almost Rs 1.5 lakh crore due to cuts in the tax rate, and sluggish economic activity. The Budget expects income tax collections to grow at 14 per cent next fiscal. But given the rejig in income tax rates - the FM has pegged revenue forgone at Rs 40,000 crore even though there is uncertainty over how many filers will opt for the new regime - it implies a huge buoyancy. Moreover, if income tax collections this year ends up being even lower than what the revised estimates suggest, collections for next year will need to be adjusted downwards. On the indirect tax side, the revenue boost from GST has not materialised - indirect tax collections have actually dipped from 5 per cent of GDP in 2018-19 to 4.9 per cent in 2019-20 and are expected to remain at this level. The Centre now expects monthly GST collections to grow by 17 per cent. Considering the slowdown in consumption, it is debatable whether this is achievable. With the uncertainty surrounding tax revenues, the Centre has taken recourse to relying heavily on non-tax revenues and disinvestment proceeds. It has pegged collections from the telecom sector at Rs 1.33 lakh crore, suggesting that it does not expect to give telcos any leeway on the adjusted gross revenue issue. And even though the disinvestment target for this year is unlikely to be met, it has raised the target for next year to Rs 2.1 lakh crore. While the Centre is likely to be banking on divesting its stakes in the LIC, Air India and BPCL, this pipeline makes for a challenging disinvestment calendar.|
|The underlying assumption in the Budget's numbers appears to be based on the government's views that the economy has bottomed out and is now likely to pick up, although gradually. Yet this is the third consecutive year when fiscal deficit has breached its target, indicating deteriorating fiscal marksmanship.|
A) Growth of direct taxes is likely to be sluggish because corporate tax collections have fallen.
B) Growth of direct taxes will be much more than the projected figure
C) The economic activity is currently too sluggish.
D) Despite the sluggish economic activity, tax collection will grow because of strict enforcement.
Correct Answer: A
Solution :(a) The Union Budget for 2020-21 has assumed gross tax revenue growth at 12 per cent. To achieve this, it has pegged direct taxes to grow at 12.7 per cent. This is far too optimistic. Direct taxes are likely to grow by only 2.9 per cent this fiscal as corporate tax collections have fallen by almost Rs 1.5 lakh crore due to cuts in the tax rate, and sluggish economic activity.
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