Revenue rain: Mop-up could exceed budget expectations in FY24

If the buoyancy in direct and indirect taxes is sustained, India could end the current financial year with total tax collections surpassing the budget estimate made on February 1 this year by “considerable margin”, government officials have stated.
The Business Standard has stated that these revenue expectations are based on the preliminary assessment gleaned from early pre-budget discussion sessions in the Union finance ministry. While a clearer picture can only emerge after advance tax payments for the third quarter in October-December period and GST collections for the April-December period are obtained, officials are hopeful of exceeding the revenue projections made in the early part of the year.
It might be said that if the revenue projections are exceeded this year, it would be an action replay of last year.
Detailing how the revenue collection exceeded projections in FY23, an official statement said, “The provisional figures of direct tax collections for the Financial Year (FY) 2022-23 show that net collections are at Rs. 16.61 lakh crore, compared to Rs. 14.12 lakh crore in the preceding Financial Year i.e. FY 2021-22, representing an increase of 17.63%. The Budget Estimates (BE) for Direct Tax revenue in the Union Budget for FY 2022-23 were fixed at Rs.14.20 lakh crore which were revised and the Revised Estimates (RE) were fixed at Rs.16.50 lakh crore. The provisional Direct Tax collections (net of the refunds) have exceeded the BE by 16.97% and RE by 0.69 %.”
The current estimate of total revenue generation in FY24 being tossed around in internal meetings is Rs 33.61 lakh crore, according to the figures presented in the Union budget. Out of this amount, direct taxes, central part of the goods and services tax and customs and excise are supposed to produce Rs 18.23 lakh crore, Rs 9.6 lakh crore and Rs 5.72 lakh crore respectively.
The performance of the taxman has been encouraging in the current financial year.
GST collections have been very encouraging with monthly average mop-ups well above Rs 1.5 lakh crore almost every month in 2023. Based on these figures, the authorities expect 13-14% annual growth in GST revenues. In 2024-25, the monthly average can easily rise to Rs 1.7-1.8 lakh crore, said officials.
The highest GST collection in FY has been Rs 1.87 lakh crore in April. The October GST revenue stood at Rs 1.72 lakh crore, the second highest. This year, the monthly average collections has hovered between Rs 1.6 lakh crore to Rs 1.65 lakh crore. “This is on account of several policy measures and action plans that the revenue department has readied and initiated in the past few months. These would fully reflect in the next financial year,” said an official.
If one includes both direct and indirect taxes, the total collection could rise 10.45% to reach the projected Rs 33.61 lakh crore in FY24.
The government is hopeful of a 10.5% growth in revenues from corporate and individual income tax to Rs 18.23 lakh crore in the current financial year. GST collection is projected to grow 12%.
Independent professionals are the government’s expectations. M S Mani, partner, Deloitte India said, “An expectation of strong GST revenue collection next year, based on a very good collection this year, would largely depend on the economic performance, since GST is a transaction-based consumption tax.”
On the direct tax front, in this financial year gross collection is expected to grow 10.1% year-on-year, and net collection 11.1%.
Corporation and personal income-tax revenues could grow 11.7% and 11.4% respectively. Said a finance ministry bureaucrat, “Tax buoyancy will continue to be over 1 (higher than economic growth), helped by formalisation of the economy, data integration and improved compliance. However, tax projection is being decided after taking multiple factors into account.”
A particular streak of hope emanates from the 27% year-on-year growth of corporation tax in September this year. It follows months of muted growth in this important source.
Personal income tax revenue is also rising close to the budget estimate. The direct tax collection so far stands at 53% of the FY24 estimate.
“Given that the economy is expected to grow over 6%, and with several compliance measures and data integration between GST and Income tax, tax buoyancy should remain robust. The current mop-up should provide some cushioning to government spending, which might be impacted by the likely extension in the Pradhan Mantri Garib Kalyan Anna Yojana,” national tax leader of EY India Sudhir Kapadia.
The only point of concern seems to be excise duty. Meeting the excise projection could be difficult. With GST subsuming most indirect taxes, excise is mostly levied on tobacco and petroleum.