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Corporate tax growth of 12% for FY21 'unrealistic'

By Dev Chatterjee
February 03, 2020 16:06 IST
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The increased tax target comes at a time when consumer spending and sales growth are slowing down and most companies are not investing in new capacities.

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Illustration: Uttam Ghosh/Rediff.com

Even as the Indian government announced in the Budget that it would fall short in meeting the corporate tax collection target for the current year, it has set an ambitious 12 per cent growth in tax collections from India Inc for the next fiscal year.

“The tax collection targets from Corporate India are unrealistic and are too ambitions, especially when the government has announced hefty tax cuts,” said a chief financial officer of a large company.

 

The increased tax target comes at a time when consumer spending and sales growth are slowing down and most companies are not investing in new capacities.

The average capacity utilisation of factories is hovering around 76 per cent, and electricity production is falling.

In the Revised Estimates for 2018-19, the government is expecting its corporate tax collections to fall 8 per cent - this was mainly due to a sharp cut in corporate tax rates announced in October last year.

The corporate tax cuts were effective from April 1, 2019.

Chief executive officers said the corporate tax targets look aggressive, and how the government will achieve the target is not specified.

“Unless there is sharp increase in tax compliance, it is quite likely the government will have to cut current spending, as was the case in 2019-20 (FY20),” said an analyst with a foreign brokerage.

Besides, with budgeted nominal gross domestic product growth of 10 per cent year-on-year (YoY) and gross tax revenue growth of 12 per cent YoY, the implied tax buoyancy stands at 1.2, which continues to appear ambitious versus the 0.5 tax buoyancy achieved in FY20, he said.

“How the nominal GDP will grow to 10 per cent is a mystery,” said another analyst.

Overall, analysts estimate that the government’s net tax revenue collections are likely to fall short of the budgeted numbers by roughly Rs 60,000 crore in both FY20 and 2020-21, according to a Bloomberg estimate.

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Dev Chatterjee in Mumbai
Source: source
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