Centre's finances continue to look bleak due to abysmally low corporate tax and Central GST collections. The fiscal deficit in the first five months of the financial year (April-August 2020) stood at Rs 8.7 lakh crore, 109 per cent of the government's budget estimate of Rs 7.96 lakh crore.
Gross tax collection in the said period was Rs 5.04 lakh crore, just 76 per cent of Rs 6.6 lakh crore in the corresponding period last year.
The corporate tax collection in the first five months of 2020-21 was Rs 64,715 crore, 58 per cent of Rs 1.11 lakh crore in the same period in 2019-20. The fall in corporate tax collections could be because of both the fall in corporate profits due to COVID-19 lockdown as well as reduction in corporate tax rates, which was announced only in September 2019.
"Going forward, we expect the pace of contraction in corporate tax collections to narrow to an extent in the coming months, given the impact of the base related to the change in corporate tax rates in mid-FY2020," says Aditi Nayar, principal economist, ICRA Ltd.
Income tax collections at Rs 1.18 lakh crore was 29 per cent lower than Rs 1.65 lakh crore collected in the April-August period last year.
Central GST collections also witnessed a 40 per cent drop in April-August 2020 compared to last year. The Central GST collection during the five-month this year period was Rs 1.25 lakh crore against Rs 2.1 lakh crore in the same period last year.
Despite over 40 per cent drop in both CGST and corporate tax collection, the fall in gross tax collection was slightly moderate at 24 per cent due to 32 per cent jump in excise duty collection. The excise duty collection during April-August 2020 was Rs 1 lakh crore against Rs 76,300 crore last year.
According to ICRA's Aditi Nayar, the centre's net tax revenues, non-tax revenues and disinvestment proceeds together could fall short of the FY21 Budget Estimate by Rs 6 lakh crore.
Meanwhile, the government on Wednesday said that it will not increase its borrowing target of Rs 12 lakh crore for the current financial year as the economy continues to show healthy revival.
Secretary in the department of economic affair Tarun Bajaj said that the government will continue with its borrowing target of Rs 12 lakh crore, out of which Rs 7.66 lakh crore has already been borrowed. The rest of the Rs 4.33 lakh crore will be borrowed in the second half.
Bajaj said that so far the government has borrowed at an average cost of 5.82 per cent, which is the lowest in last 15 years.