Tax Collections Exceed FY24 Budget Estimate by 16.3% in H1
The fiscal year 2023-24 has seen a remarkable surge in tax collections during the first half of the year, with figures exceeding the budget estimate (BE) by a substantial margin.
As per the latest data released by the government, tax collections have grown by an impressive 16.3% during the first six months of the fiscal year, showcasing a strong economic recovery and efficient tax administration.
This surge in tax collections is a testament to the resilience of the Indian economy and the government’s efforts to boost revenue.
According to figures provided by the Controller General of Accounts (CGA) on Tuesday, the Center’s tax collections continued to demonstrate buoyancy, with gross-tax revenue (GTR), net of refunds, posting a significant 16.3% year-over-year gain in the first half of FY24. This contrasts with the 10% increase that was planned for the whole fiscal year.
A fast increase in personal income tax mop-up was the main cause of the H1 GTR’s sharp growth. Additionally, growth in corporation tax and customs revenues exceeded the planned rates. Higher revenues were also a result of elevated inflation, particularly in the areas of customs and GST.
In the first half of the year, income tax collections increased by 31.1% to Rs 4.52 trillion, while corporate tax mop-up saw a 20.2% increase to Rs 4.51 trillion.
“With a 27% rise in corporation tax collections in September amidst healthy advance tax inflows, nearly 49% of the FY2024 BE had been collected, which is an encouraging trend,” stated Aditi Nayar, chief economist at ICRA.
In contrast to the budget estimate of Rs 18.23 trillion, a finance ministry official told FE last week that the center’s direct tax receipts may “comfortably” surpass Rs 19 trillion.
Several factors have contributed to the impressive growth in tax collections during the first half of FY24:
- Economic Recovery: The Indian economy has been steadily recovering from the setbacks caused by the COVID-19 pandemic. As businesses resumed operations and consumer demand revived, economic activities gained momentum. This growth in economic activity has naturally resulted in higher tax collections.
- Expansion of the Tax Base: The government has taken significant steps to broaden the tax base and curb tax evasion. Initiatives such as the Goods and Services Tax (GST) have streamlined the taxation system, making it more difficult for individuals and businesses to evade taxes. This has led to an increase in the number of taxpayers and higher tax revenues.
- Strong Corporate Earnings: The corporate sector has shown resilience and recorded strong earnings, leading to higher corporate tax collections. The revival in industrial and manufacturing sectors, along with a favorable global economic environment, has supported this growth.
- Robust Stock Market Performance: The stock markets in India have performed exceptionally well in recent times, attracting more investors and generating significant capital gains tax revenue. The bullish sentiment in the markets has led to increased trading activity, resulting in higher tax collections from securities transactions.
- Efficient Tax Administration: The government has been proactive in improving tax administration and reducing bureaucratic hurdles. The use of technology and data analytics has helped in identifying tax evaders and ensuring better compliance.
The substantial increase in tax collections during the first half of FY24 has had a positive impact on fiscal consolidation. The government’s fiscal deficit, which had widened due to the pandemic, is now showing signs of improvement. Higher tax revenues provide the government with the necessary resources to fund its expenditure, including infrastructure development, social welfare programs, and healthcare initiatives.
The increased revenue collection also reduces the government’s reliance on borrowing to bridge the fiscal gap, which, in turn, helps in stabilizing the country’s debt-to-GDP ratio. A lower fiscal deficit is considered a positive signal for investors and credit rating agencies, which can lead to lower borrowing costs for the government and a more stable macroeconomic environment.
While the surge in tax collections is undoubtedly a positive development, challenges remain on the horizon. Inflationary pressures, rising fuel prices, and global economic uncertainties can impact economic growth and tax collections in the coming months. Additionally, the government must continue its efforts to further enhance tax compliance and streamline tax administration to sustain this momentum.
The impressive growth of tax collections by 16.3% during the first half of FY24, exceeding the budget estimate of 10%, is a testament to the Indian economy’s resilience and the government’s commitment to fiscal discipline.
This surge in revenue has the potential to drive economic growth, reduce the fiscal deficit, and create a more stable macroeconomic environment. However, policymakers must remain vigilant and address challenges to ensure that this positive trend continues throughout the fiscal year and beyond.
