The Centre collected a net amount of Rs 9.45 lakh crore as direct taxes in 2020-21, up Rs 40,000 crore or 4.4% from the revised estimate (RE) presented in the Budget on February 1, thanks to improved collections in the second half of the year, especially in the fourth quarter. Had the government not been liberal with refunds – up Rs 78,000 crore or 42% on year at Rs 2.61 lakh crore – the net collections would have been even higher.
This, coupled with revenue from ‘Union excise duties’ likely being higher than the respective RE by Rs 30,000 crore, would likely allow the Centre to rein in the fiscal deficit at a level slightly lower than the RE of 9.5% (RE) of the GDP, at the RE levels of expenditure and other revenue streams. The National Statistical Office in the second advance estimate predicted a narrower contraction in nominal GDP of 3.8% in FY21, against a 4.2% fall estimated earlier; if this holds true, it would have a further salutary effect on the fiscal numbers. Robust GST collections in recent months have brightened the prospects of the Central GST collections being higher than the RE.
Given the spurt in tax collections, the Centre has already released an extra amount to state as tax transfers and cancelled a planned Rs 20,000-crore borrowing which was scheduled for the second half of March.
The Centre released an ‘additional’ Rs 45,000 crore as tax devolution to state governments in FY21, the finance ministry said a few days earlier. The devolution was 8.2% higher than the respective RE, at Rs 5.95 lakh crore. Of course, the Centre had cut devolution target by Rs 2.34 lakh crore or 30% from the budget estimate of Rs 7.84 lakh crore for 2020-21.
According to provisional figures of direct tax collections for the financial year 2020-21 released by the finance ministry on Friday, net (post-refunds) corporation tax collections stood at Rs 4.57 lakh crore and personal income tax, including security transaction tax, at Rs 4.88 lakh crore.
The break-up of the pre-refund direct tax mop-up is as follows: “Advance Tax of Rs 4.95 lakh crore; tax deducted at source (including Central TDS) of Rs 5.45 lakh crore; self-assessment tax of Rs 1.07 lakh crore; regular assessment tax of Rs 42,372 crore; dividend distribution tax of Rs 13,237 crore and tax under other minor heads of Rs 2,612 crore”.
“Despite an extremely challenging year, the Advance Tax collections for FY2020-21 stand at Rs 4.95 lakh crore which shows a growth of approximately 6.7% over the Advance Tax collections of the immediately preceding Financial Year of Rs 4.64 lakh crore,” the finance ministry said.
The Centre has recently anounced that it will borrow Rs 7.24 lakh crore from the market in the first half of FY22, or just over 60% of the budgeted full-year target. The planned borrowing is higher than 56% in the first half of FY21, when a Covid-induced lockdown prompted the government to expand borrowing substantially in the second half as well. Still, it’s in sync with the usual pattern (60-65%) witnessed in most part of the last decade.
The Centre had raised its gross market borrowing in FY21 to Rs 13.71 lakh crore, against the revised estimate of `12.80 lakh crore, thanks to a drastic mismatch between the revenue collection and expenditure requirement in the wake of the pandemic.
Asked if the fiscal deficit for FY21 will substantially undershoot the revised estimate, given that it stood at only 76% of the full-year target until February, then economic c revenue secretary (now revenue secretary) Tarun Bajaj said the deficit would still be close to the RE level of Rs 18.48 lakh crore. This is because the government spent a lot in March, he had added.
With net (post-devolution) tax revenue (NTR) rising by 9.1% on year in April-February, FY21 NTR will overshoot the revised estimate of Rs 13.4 lakh crore by a good margin.