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Government may have to pinch pennies as tax revenue falls

HYDERABAD: With just two months left in the fiscal, analysts peg the shortfall in tax collections in financial year 2019-2020 to be between Rs 1.7 lakh crore and Rs 2.95 lakh crore.

Given the bleak revenue and the need to balance the books, the government is expected to resort to expenditure compression, borrow more and seek additional dividends from public sector units and the Reserve Bank.

While analysts at Kotak Securities estimated net tax revenue shortfall of about Rs 1.7 lakh crore, others like HDFC are anticipating the shortfall to be higher at Rs 2.95 lakh crore. Similarly, HSBC has pegged tax collections to miss target by a wider margin of Rs 2.7 lakh crore, while Nomura expects it at Rs 2.1 lakh crore. While no two estimates are similar, all of them agree on one thing: that the slip on taxes is not only inevitable, but is also likely to be higher than Rs 1.45 lakh crore, the sum the government gave away to the industry in the form of corporate tax cuts last September.

“Weak economic activity, along with low tax buoyancy, is likely to keep both direct and indirect tax collections low,” noted HSBC.

According to Motilal Oswal, the Central government’s shortfall in tax collections at Rs 2.1 lakh crore amounts to 10.3 per cent of the Budget Estimate (BE), making it the highest-ever shortfall since FY09, the second-highest since FY02.

Indirect tax collections too are disappointing, largely due to lower GST collections. Despite missing the monthly target of over Rs 1 lakh crore for five months till December, the government is believed to have raised the  target to Rs 1.25 lakh crore for the rest of the fiscal. Likewise, custom duty collections too are off the cuff, having fallen over 12 per cent till November 2019.

According to HDFC, tax revenue remains low, signalling the lack of improvement in tax collection efficiency and compliance.

Worryingly, tax buoyancy, a measure of tax collected per unit of GDP, is expected to fall to 0.6 per cent compared to the budgeted 1.7 per cent.

As if this isn’t enough, non-tax revenue too remained lackluster, especially disinvestment proceeds pegged at Rs 1 lakh crore, but are likely to be woefully inadequate.