Increase in tax revenue but decrease in tax GDP ratio

- Higher tax collection should also be assessed on the basis of how much revenue has increased in line with the expansion of the economy to a random size.

The tax collection figures for the first half of the current financial year have been released recently. The data indicates that the collection has increased significantly. Direct taxes, which mainly include corporation tax and personal income tax, have increased by 24 percent, while goods and services tax (GST) has seen a 31 percent increase. Excise and Customs figures are only five months old and have declined by 17 percent and 14 percent respectively. However, the trends emerging from these figures are indicative of tax collection. From a general budget perspective and a fiscal deficit target of less than 6.4 percent of GDP, the tax collection figures are arguably better. Gross revenue collection for 2022-23 is projected to grow at a rate of less than two per cent, well above the target of 19 per cent growth recorded in the first five months. Of course, the reduction in excise duty on petroleum products will also cause the government to face the problem of reduced revenue and additional expenditure.

Like extension of free ration scheme and increase in fertilizer subsidy, there is no provision in the budget for this. But there have also been savings due to less procurement of food grains and non-utilization of funds from some central ministries. Overall, the government's belief that it will achieve the fiscal deficit target. It also plans to borrow less for the second half of 2022-23. But higher tax levies should also be assessed on the basis of how much revenue has increased in line with the expansion of the economy to an arbitrary size. There is no official data on the size of the Indian economy in the first half of 2022-23 but tax collections in the first quarter (GDP figures are available for the same period) compared with the size of the economy reveals a different picture. During the April-June quarter, Central Gross Tax Revenue increased by 22 percent to Rs. 6.5 lakh crore, but the tax-GDP ratio decreased.

The share of tax revenue in GDP decreased from 10.35 percent in April-June 2021 to 10 percent in the same period of 2022. The government has estimated the share of gross tax revenue in GDP to be 10.7 percent in 2022-23. The first quarter performance was not as expected.

Growth in gross tax revenue has already started to decline. It was 22 percent in the first quarter of 2022-23 and 19 percent in the first five months of this year. Direct tax growth has also slowed during this period, falling from 35 percent in the first quarter to 29 percent in the first five months of the current fiscal. Another result is advance tax collection which is based on the estimate of the taxpayer's income and tax liability in the coming months. Advance tax collection had increased by 33 per cent till June 15 but by the end of September 15 it had increased by only 12 per cent.

Advance tax figures for the second quarter show that the outlook for economic growth is not very encouraging. The decline in excise duty collection is understandable as the government has reduced excise duty to control retail prices of petrol and diesel. This led to a decline of 17 per cent in April-August 2022, which was higher than the 14 per cent estimated in the 2022-23 budget. This gap may widen in the coming months. The current trend of crude oil prices in the international market depends on the willingness of the government to control inflation.

As for GST revenue, overall revenue collection increased by 31 per cent in the first half of 2022-23, although month-on-month revenue growth remained almost flat after May. But it is important to understand that imports play an important role in this growth. Total GST increased by 31 percent in April-September 2022, but in the same period, Integrated GST on imports (IGST) increased by 44 percent. In other words, the contribution of IGST on imports to the total GST has increased to 27 percent. In the entire 2021-22 this share was 25 percent and in 2019-20 it was 22 percent.