Despite a surge in October GST collections this year, the central government is still looking at a big shortfall in tax revenue, if the first six months of tax collection is anything to go by. In first six months of the financial year till September, the gross tax collection is falling short of last year's collection by almost Rs 2 lakh crore, or by Rs 1.98 lakh crore to be precise.
In the April-September 2020 period, gross tax collection has fallen by 27.5% to Rs 7.2 lakh crore compared to Rs 9.2 lakh crore a year ago. Rs 24.2 lakh crore gross tax collections was budgeted in the current financial year, which now looks like an impossible target. In the last financial year, only Rs 20 lakh crore could be garnered. Given the situation this year, the Centre will be well short of last year's gross tax collections by a big margin.
Even if Rs 1.82 lakh crore tax collection is clocked every month for the rest of the year like last year, it will end with a gross tax collection of Rs 18 lakh crore, well short of the Rs 20 lakh crore achieved last year, and almost Rs 6 lakh crore short of the Budget estimate for 2020-21. Even that kind of monthly run rate will depend on sustainability of the economic revival beyond the festive season.
Kunal Kumar Kundu, India Economist at Societe Generale Corporate & Investment Banking, says that there is bound to be a major tax shortfall (this year). "The lower tax collection earlier was not a true reflection of such low level of economic activities and higher tax collection in the last couple of months is also not a reflection of much improved economic activities," he says. According to Kundu, in the rest of the 6 months, if the government collects Rs 1.5 lakh crore a month, it will take the total tax revenue to around Rs 16 lakh crore in 2020-21.
Sunil Kumar Sinha, principal economist at rating agency India Ratings, is slightly more optimistic as he estimates that the tax collection could be around Rs 18-19 lakh crore.
Net direct tax collections in the first six months of 2020-21 have been Rs 3.2 lakh crore, 31.5% lower than last year's Rs 4.6 lakh crore. The government has mopped up Rs 1.5 lakh crore in corporate taxes and Rs 1.66 lakh crore in income taxes. Corporate tax collections have particularly suffered this year with almost a 40% drop year-on-year. Income tax collections this year have also fallen year-on-year albeit at a much lower rate of 22%.
The budget target for direct tax collection in the current financial year is Rs 13.2 lakh crore, and with half year gone till September, barely 24% of that target has been achieved. But it should be kept in mind that the Budget targets for tax collections were fixed in January without factoring in the COVID-19 impact on the economy.
Despite almost 60-70% drop in GST collections in the first two months of the current financial year, the fall in indirect tax collections in the first half has been less severe thanks to 34% jump in central excise collections during the period.
Central excise collections rose from Rs 95,930 crore in the April-September period last year to Rs 1,28,753 crore this year. This is due to the fact that fall in crude oil prices allowed government to increase excise duty on petroleum products and keep them at elevated levels for a long time.
The Centre's portion of the GST collection in the first half of this year at Rs 2,26,342 crore was 19.68% less than that of previous year. Monthly GST collections have shown resilience after the first two months (April and May) of sharp fall. In September and October 2020, monthly collections actually surpassed last year's collections.
Customs duty collection during the period expectedly fell by 43% to Rs 40,347 crore. With GDP likely to contract by 8-10% in the current financial year, it is unlikely that the tax collections will improve much, and the Centre may end up with a lower gross tax collection than last year.