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Jaswant plays safe with tax numbers
A K Bhattacharya |
March 05, 2003
How realistic are the tax numbers that Finance Minister Jaswant Singh presented in his maiden Budget last Friday?
The question is relevant because every year the Budget is presented, you realise that the revenue figures that you thought were sacrosanct estimates presented before Parliament a year ago, are no longer valid.
Often, even the revised estimates go through a further revision (usually downward in respect of revenue numbers), before they become actuals in the government's accounts.
So, if you were to judge Yashwant Sinha's performance as finance minister in 2001-02, on the basis of the revised estimates he presented to Parliament in February 2002, you could be wide off the mark.
For instance, Mr Sinha told Parliament in February last year that the fiscal deficit was 5.7 per cent of the gross domestic product, which in itself was much higher than the earlier Budget estimate of 4.7 per cent.
But last Friday, Jaswant Singh revealed that the fiscal deficit was actually 6.1 per cent of GDP in 2001-02. Now, that is a further slippage in the deficit of about Rs 10,000 crore (Rs 100 billion)!
In the good old days, finance ministers were extremely conscious of the sanctity of keeping the revised estimates close to the Budget estimates presented a year ago.
If the revenues in the revised estimates were more through better mobilisation, and expenditure less as a result of effective management, the finance minister would take due credit for his achievement.
But if the expenditure was more and the revenues less than the Budget estimates, the finance minister and his advisors would be apologetic and take pains to explain and rationalise the slippage.
Such niceties were forgotten during the last decade, when most finance ministers failed to consistently stick to the targets set by themselves in the Budget estimates.
The slippage showed particularly in the revenue numbers. The revised estimates for tax revenues were lower than the Budget estimates on most years, barring a year or two.
And the actual figures too were lower than the revised estimates in some years.
Jaswant Singh seems to have learnt the right lessons from his predecessors. In his first Budget, he has preferred to err on the side of caution.
All his revenue projections for 2003-04 are grossly underestimated, so that there is virtually no chance of his failing to meet the revenue targets.
Excise, the single largest contributor to his tax kitty, is projected to grow by 11 per cent in 2003-04, compared to a 20 per cent growth registered in 2002-03.
In other words, the net additional excise collected by the government in 2002-03 over the previous year was Rs 14,828 crore (Rs 148.28 billion).
In 2003-04, the target for additional excise collection is only Rs 9,408 crore (Rs 94.08 billion). With a projected six per cent GDP growth, the target indeed looks very modest.
Customs is projected to grow by 8.5 per cent in 2003-04, compared to 13 per cent in the current year.
In 2003-04, customs officers will be required to collect only Rs 3,850 crore (Rs 38.50 billion) more revenue than the total amount of Rs 45,500 crore (Rs 455 billion) they collected in 2002-03.
This will be less than three-fourth of the customs collection growth they achieved in the current year.
Even though the peak customs duty is coming down from 30 per cent to 25 per cent, rising international crude oil prices alone could take care of the additional collection target set for the next year.
Similarly, Mr Singh proposes to collect only Rs 8,000 crore (Rs 80 billion) from service tax in 2003-04, compared to Rs 5,000 crore (Rs 50 billion).
A three percentage point increase in the service tax rate to eight per cent alone would rake in Rs 3,000 crore (Rs 30 billion) for the exchequer.
In addition, ten more services are being brought under the service tax net. Once again, the revenue target has been understated.
As senior revenue department officials concede, indirect taxes will get the government Rs 10,000 crore (Rs 100 billion) more than what has been indicated in the Budget estimate.
On the direct taxes front also, a revenue growth of 15 per cent in corporation tax is a target that seems easily achievable.
It certainly appears more modest than the 22 per cent increase in the collection of corporation tax in the current year and a 33 per cent increase in the previous year.
Only in respect of personal income tax has Mr Singh projected a collection target (18 per cent growth in 2003-04) that is marginally higher than the current year's growth of 17 per cent. Even then the target should be easily achievable.
So, Jaswant Singh has made sure that when he rises to present his second Budget in February 2004, he does not cut a sorry figure as far as his tax numbers are concerned.
In all probability, he will take credit for having exceeded the revenue collection targets set by him a year ago. He may still be accused of having given a set of numbers that were not realistic.
But that, Jaswant Singh will argue, is any day better than being accused of failing to meet the tax collection target.
And for all these reasons, his fiscal deficit number of 5.6 per cent of GDP, though high, appears to be an easy target to achieve.