How Does India’s Tax Collections Impact Budget 2018?

Mar 28, 2018 | 8 months ago | Read Time: 2 minutes | By iKnowledge Team

IMF recently welcomed measures with regards to tax collections in India. Read on to know more.

In February 2018, India announced its many targets in the financial budget. The measures included fiscal deficit targets, budget targets for the fiscal year 2019, and social & health initiatives for the rural sector. Although, the International Monetary Fund (IMF) recently welcomed the measures, it put forth some of its concerns regarding budget targets and assumptions regarding tax revenue.

Implementation issues of GST

When the GST system was introduced last year, it was presumed that its implementation would increase the tax revenue in the long term. After its rollout in 2017, the GST was found to have its fair share of issues. The rates were revised several times (the last modification was carried out on 18 Jan 2018.) The IMF believes the tax revenue and other budget targets may fall short of expectations.

“Tax revenue assumptions, ambitious”

Gerry Rice, IMF Director of Communications Department said the budget makes assumptions regarding the rise in tax revenue and overlooks the impact of the volume of transactions may have on the final number. “The government may not be able to collect higher tax revenue from the same amount of consumption and income”, he said at a news conference in Washington. 

‘Unfunded initiatives may impact costs to government’

The government has introduced quite a few social welfare programmes that are yet to be funded. According to Rice, there may be a change in the fiscal implications once they are funded and the details may need a closer look. “There could be cuts in capital expenditure when more money is spent on new policy initiatives”, Rice said.

Budget expenditure same despite health and social measures

The budget included the announcement of a healthcare plan for poor families, to cost the government Rs. 12,000 crores per year. The plan also known as Modicare is the National Health Protection scheme, which is to be funded with 60% contribution from the central government, and the rest funded by state governments. Farmers were also promised a minimum support price of 1.5 times the cost of production. “The budgetary outlays have remained the same despite initiatives in the health and social sector”, Rice stated.

Fiscal deficit targets

The IMF had previously welcomed fiscal deficit targets and the Economic survey after the Budget was announced on February 1st, 2018. The IMF had projected a 7.4% GDP growth in India in 2018 and 7.8% in 2019. The economic survey’s outlook of 6.7% in fiscal 2017-2018 and 7-7.5% in 2018-19 was in line with the IMF’s forecast as well.

The IMF had also recognized the progress made in recent years with respect to pace and composition of reform being implemented in India. The reforms that IMF named included the ongoing recapitalization of public sector banks, further liberalization of foreign direct investment in India, implementation of goods and services tax (GST) as well as the implementation of the Insolvency and Bankruptcy Code (IBC).

Conclusion

Despite the concerns about tax revenue assumptions, the IMF reiterated that it is supportive of the budget targets for 2019 and the target of fiscal deficit of 3.3 percent of the GDP.


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