Tax revenues may surpass target: ICRA

‘Will allow room to cut fuel taxes’

July 23, 2021 10:56 pm | Updated 10:56 pm IST - NEW DELHI

The government’s gross tax collections may surpass the budget target for this year, as high taxes on fuels and a ‘relatively faster recovery in international trade’ have spurred excise and customs duties collections to 30% of the full-year estimate in the first quarter itself, ratings agency ICRA said.

Healthy inflows in the first quarter, with overall gross tax revenue at 25.1% of budget estimates, indicated there was room to reduce cesses on petrol and diesel, said Aditi Nayar, chief economist at the agency.

“This would allow monetary policy normalisation to be postponed, in a bid to continue to support economic activity in an uncertain growth environment,” she added, stressing that lowering fuel taxes will boost consumption sentiment and ease inflationary pressures .

Compared to the pre-COVID era, tax inflows were 39% higher in the first quarter at ₹5.6 lakh crore, despite the impact of the second COVID-19 wave and corporation tax, personal income tax and central GST receipts being about 21%-22% of their full-year estimates.

“Our calculations suggest that the FY2022 BE for gross tax revenues of ₹22.2 lakh crore can be achieved, even with a 5% contraction in the remainder of the year, which appears unlikely despite the lingering uncertainty on the growth front,” Ms. Nayar said.

ICRA also noted that GST compensation cess collections were ₹24,600 crore in the first quarter, almost 25% of the full-year estimate of ₹1 lakh crore. This will ease concerns regarding the flows of GST compensation to the State governments through the grants route, the agency said in a note, citing tax revenue numbers disclosed by the Finance Ministry in response to a question in Parliament.

Last week, the government released ₹75,000 crore as GST compensation to States through market borrowings and is expected to raise another ₹84,000 crore for compensating States, based on its estimated shortfall in GST cess collections.

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