The NITI Aayog expects India’s direct tax base to rise significantly over the next three years, due to demonetisation and steps taken to curb black money by the government, pegging the direct tax to GPD ratio at 6.3% in 2019-20 from 5.6% in 2016-17.
“The forecasted direct tax to GDP ratio is 5.8%, 6% and 6.3% in 2017-18, 2018-19 and 2019-20, respectively,” the government think tank estimated in its draft three-year action plan for the economy, where it has also recommended measures to increase the tax base, such as phasing out myriad exemptions.
Demonetisation
Demonetisation, it noted, had led to a significant increase in bank deposits which is likely to result in disclosure of “a significant amount of income that would not have been done otherwise.” Therefore, it has argued that there could be a significant one-time increase in the direct tax revenues for 2017-18, although such an increase has not been factored into its estimates.
As per its estimates, gross tax revenue (total tax receipts before deducting the tax share of States) will rise from ₹17.03 lakh crore to ₹19.49 lakh crore this year and rise further to ₹25.81 lakh crore in 2019-20 at an annual growth rate ranging between 12%-17%.
Citing the recent steps to curb black money generation and the drive to replace cash transactions along with simplification of tax norms that are being considered, the Aayog said: “The cumulative result of these measures would be increased tax compliance and an expansion in the tax base. Going forward, this will lead to increase in direct-tax to GDP ratio.”
The Aayog has recommended a massive increase in outlays on healthcare and railways and road sectors over the next three years, with the share of healthcare spending in total government expenditure expected to rise from 1.7% in 2015-16 to 3.6% by 2019-20.
“Health expenditures contribute directly to enhancing the social welfare of people and in developing human capital. The increased allocation should be utilised towards public health, state level grants, fiscal incentives and human resources for health to states to improve health outcomes,” it said.“keeping in mind that the current expenditure levels on health are low.”
Overall, developmental revenue expenditure (which includes education, healthcare, Agriculture) should go up to Rs 10.86 lakh crore by 2019-20 from Rs 7.43 lakh crore, while developmental capital expenditure will increase to Rs 3.58 lakh crore from Rs 90,649 crore, it said.
Likewise, it has proposed education’s share of total expenditure be hiked from the current level of 3.7% to 4% by 2019-20, with a focus on sprucing up government-run education institutions.
A substantial increase in capital expenditure has also been recommended for Railways to Rs 1.18 lakh crore from Rs 40,000 crore. For roads, the allocation is proposed to be doubled to Rs 86,000 crore (or 3.1 % of total expenditure) from Rs 31,000 crore (1.8% of total expenditure).
“There is an urgent need to develop the transportation infrastructure to assist in economic growth.” Capital expenditure in the defence sector is pegged at Rs 1.72 lakh crore (or 6.2% of total expenditure) in 2019-20 from Rs 95,000 crore in 2015-16.
