With the Indian economy in a slowdown phase, concerns over revenue shortfall and the resultant impact on country s overall fiscal situation are now being flagged by external agencies. The International Monetary Fund (IMF), as part of its annual Article IV consultations with India, has raised questions regarding the NDA government s revenue targets in the light of the below-trend revenue collections amid the worsening slowdown in the broader economy.
The IMF is learnt to have posed questions to the Finance Ministry on whether the government s revenue targets for both direct and indirect taxes, including Goods and Services Tax (GST) estimates in the Union Budget, appear to be achievable. The IMF has asked questions whether the revenue targets can be met given that revenue buoyancy will be affected due to the economic slowdown and the corresponding impact on the fiscal math of the government, a senior official said. In its questionnaire sent to the Finance Ministry, the IMF is also learnt to have flagged the roadblocks in the implementation of GST and highlighted the need to further simplify the indirect tax regime.
The questions by the IMF were sent ahead of its meeting with key Finance Ministry officials this week. The questions by the multilateral agency gain significance as they come amid slowing government tax revenues reflecting the weakening of the economic growth rate of the country.
During an Article IV consultation, an IMF team of economists visits a member country to assess economic and financial developments and discuss the country s economic and financial policies with government and central bank officials. The team then reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF s member countries. A summary of the Board s views is then subsequently transmitted to the country s government and then summaries of discussions are released in public.
There is progressively a widening gap between the tax revenues and the targets, especially for direct taxes. Net direct tax revenue growth has sharply decelerated to 4.7 per cent for April 1-August 15 this year as against 9.6 per cent growth in April-June and the required annual growth rate of 17.3 per cent, The Indian Express had reported Thursday. With the sharply slower revenue growth, the government s direct tax targets are looking out of reach for the second consecutive year.
While the overall gross GST collections seem to be moving closer to the target, the actual figures released by CGA for the April-June quarter do not paint an optimistic picture for Centre s GST revenue. GST revenue collections of the Centre for April-June contracted 5.9 per cent year-on-year to Rs 1.53 lakh crore.
In July-March, the remaining nine months of this financial year, the gross tax revenue collections are required to grow at a run rate of 22.3 per cent and net tax revenue collections are required to grow at a run rate of 29.5 per cent, as per the April-June revenue collections data released by the Controller General of Accounts (CGA).