The single-most worrying aspect of Pranab Mukherjee’s budget for 2009-10 was the high fiscal deficit of 6.8% of the gross domestic product (GDP) estimated for the year. Any slip-up in meeting this target can impact the country’s sovereign rating and may make foreign investors pack up. Last year, the government has missed budgetary estimates for tax revenues and fiscal deficit. But this year it could be different as revenue estimates seem conservative and easily achievable. The tax revenue is expected to grow by just 2% to Rs 6,41,079 crore in 2009-10 . This growth is e
xpected to come entirely from a 16% jump in corporate tax collection, which account for 40% of India’s total tax receipts. Accruals under personal income tax and custom duty, on the other hand, are expected to fall 7.95% and 9.26%, respectively . Excise duties and services tax receipts are expected to be flat. Now the key question is how realistic are the budget estimates of a double-digit growth in corporate taxes? Well, there is good news. Corporate tax collection for the first two months (April-May ) has recorded 10% growth. Moreover, advance taxes for the first quarter saw a rise of 15%. The momentum can be sustained as the economy is expected to revive in the second half of the year. Then, attaining a growth of 15% in corporate tax may not be difficult. The abolition of fringe benefit tax is already factored in. There are no receipts assumed under the head of other taxes, which normally includes fringe benefit tax, securities transaction tax and tax on bank cash transactions. A bigger worry could be service tax collection, which dipped 7% in the first two months. The budget has estimated service tax receipts to be flat at last year’s Rs 65,000 crore. But, the tax rate has been cut to 10% from 12% since March. The good news is, even if the government misses the service tax target, it would only have a marginal impact as it accounts for only 10% of overall tax revenues. In short, the government can easily attain its receipt targets as the estimates are conservative. In fact, it may surpass the targets if the economy revives faster than expected. If tax receipts better estimates and expenses remain within target – both look eminently possible – then the fiscal deficit would actually be less than the estimated 6.8% of GDP. Such a surprise would bolster the equity and bond markets, both of which reacted negatively on the budget day. The picture will get clearer as months pass and advance tax figures become available. It’s too early to predict on budget targets, but this should be enough signal for the optimist to stay invested in riskier assets and not exit the market entirely in the post-budget market meltdown.
xpected to come entirely from a 16% jump in corporate tax collection, which account for 40% of India’s total tax receipts. Accruals under personal income tax and custom duty, on the other hand, are expected to fall 7.95% and 9.26%, respectively . Excise duties and services tax receipts are expected to be flat. Now the key question is how realistic are the budget estimates of a double-digit growth in corporate taxes? Well, there is good news. Corporate tax collection for the first two months (April-May ) has recorded 10% growth. Moreover, advance taxes for the first quarter saw a rise of 15%. The momentum can be sustained as the economy is expected to revive in the second half of the year. Then, attaining a growth of 15% in corporate tax may not be difficult. The abolition of fringe benefit tax is already factored in. There are no receipts assumed under the head of other taxes, which normally includes fringe benefit tax, securities transaction tax and tax on bank cash transactions. A bigger worry could be service tax collection, which dipped 7% in the first two months. The budget has estimated service tax receipts to be flat at last year’s Rs 65,000 crore. But, the tax rate has been cut to 10% from 12% since March. The good news is, even if the government misses the service tax target, it would only have a marginal impact as it accounts for only 10% of overall tax revenues. In short, the government can easily attain its receipt targets as the estimates are conservative. In fact, it may surpass the targets if the economy revives faster than expected. If tax receipts better estimates and expenses remain within target – both look eminently possible – then the fiscal deficit would actually be less than the estimated 6.8% of GDP. Such a surprise would bolster the equity and bond markets, both of which reacted negatively on the budget day. The picture will get clearer as months pass and advance tax figures become available. It’s too early to predict on budget targets, but this should be enough signal for the optimist to stay invested in riskier assets and not exit the market entirely in the post-budget market meltdown.Source:economictimes.indiatimes.com/Features/Investors-Guide/Budgetary-estimates-could-investors-confidence/articleshow/4770825.cms
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