Gross Tax Revenue Growth Projected at 10.5-11%
Gross Tax Revenue Growth Projected at 10.5-11% As the Union Budget 2025 approaches, expectations are high regarding the government’s fiscal outlook and revenue projections. Official sources indicate that the gross tax revenue (GTR) growth for FY26 is likely to be pegged at 10.5-11% over the revised estimates (RE) for FY25. Gross Tax Revenue Growth Projected at 10.5-11% This projected growth aligns closely with the anticipated nominal GDP growth, resulting in a tax buoyancy of approximately 1. For FY25, tax buoyancy was slightly higher at 1.1, highlighting robust tax collection performance relative to economic growth.
Performance Overview: FY25 Gross Tax Revenue
The Budget Estimates (BE) for FY25 had targeted GTR growth of 10.8%. During April-November 2024, actual GTR growth came in at 10.7%, nearly on par with the projections. Gross Tax Revenue Growth Projected at 10.5-11% However, the nominal GDP for FY25 is now estimated at 9.7% (first advance estimates), slightly lower than the 10.5% projected in the BE.
Despite certain challenges, revenue collection in FY25 has shown resilience, driven largely by the Personal Income Tax (PIT) segment. Gross Tax Revenue Growth Projected at 10.5-11% However, other areas, including Corporate Income Tax (CIT) and excise duty, have seen underperformance relative to expectations.
Key Revenue Components and Projections for FY26
1. Personal Income Tax (PIT)
Personal Income Tax collections have been a bright spot in FY25:
- April-November Growth: PIT mop-up grew by 23.5% year-on-year, far exceeding the BE target of 13.6%.
- Historical Trend: In FY24, PIT collections had grown at a similar pace, despite the BE anticipating a modest 10.5% growth.
For FY26, PIT growth is expected to continue its upward trajectory, with projections pegged at 13-15%. This sustained growth reflects the expanding tax base, higher compliance levels, and economic recovery.
2. Corporate Income Tax (CIT)
In contrast to PIT, Corporate Income Tax collections have underperformed in FY25:
- April-November Growth: CIT revenue saw a contraction of 0.5%, significantly missing the BE growth target of 12%.
- Reasons for Decline: Gross Tax Revenue Growth Projected at 10.5-11% The drop in CIT collections is directly linked to a decline in corporate profits, as there have been no changes in tax rates to explain this shortfall.
Experts attribute slower CIT growth to:
- Reduced tax rates introduced in 2019-20.
- Availability of tax holidays and financial incentives.
- Economic challenges affecting corporate profitability.
For FY26, CIT growth is anticipated to recover to 13-15%, contingent on improved corporate earnings and broader economic recovery.
3. Indirect Taxes
Indirect tax collections have seen mixed trends in FY25:
- GST Collections:
- Central GST collections, including cess, grew by 12.1% during April-November, exceeding the BE target of 11%.
- This robust growth reflects improved compliance and steady economic activity.
- Customs Duty:
- Customs revenue grew by 8.7% during April-November, far surpassing the BE projection of 2%.
- Higher imports of gold (up 17%) and petroleum products (up 7%) have significantly contributed to this growth.
- Excise Duty:
- Excise collections contracted by 0.6%, missing the BE growth target of 4.5%.
- The decline is partly due to the withdrawal of windfall taxes on oil production and exports of petrol and diesel.
Broader Revenue Trends and Challenges
- Tax Buoyancy: The tax buoyancy for FY26 is expected to remain close to 1, consistent with nominal GDP growth projections of around 10.5-11%.
- Sectoral Impact: Lower corporate profits in key sectors have weighed on CIT collections, while strong PIT and GST performance have helped offset these challenges.
- Economic Baseline: The government’s revenue projections are influenced by modest GDP growth of 5.4% reported in Q2 of FY25, providing a realistic baseline for FY26 estimates.
Expert Opinions on Revenue Trends
- Sudhir Kapadia, EY India: “The decline in CIT collections can be attributed to weaker corporate profits, as there have been no changes in tax rates to account for this shortfall.”
- Rahul Charkha, Economic Laws Practice: “The corporate tax base has expanded over the years due to reduced tax rates and financial incentives, but revenue growth remains slower.” Gross Tax Revenue Growth Projected at 10.5-11%
- Bipin Sapra, EY India: “Revenue growth projections for FY26 will be aligned with broader economic growth forecasts, emphasizing a cautious and realistic approach.”
What to Expect in Budget 2025
The Union Budget 2025 is likely to adopt a cautious yet balanced approach to revenue projections, reflecting economic realities and current trends in tax collections:
- Focus on PIT: Gross Tax Revenue Growth Projected at 10.5-11% Strong growth in personal income tax collections is expected to drive overall revenue performance.
- Recovery in CIT: Efforts to stabilize corporate profitability and encourage compliance may support CIT growth.
- GST Optimization: Continued emphasis on GST compliance and enforcement will play a key role in boosting indirect tax collections.
- Conservative Estimates: Revenue growth projections will remain conservative, aligning with nominal GDP growth forecasts to avoid overestimation.
Conclusion
The Union Budget 2025 offers an opportunity for the government to showcase fiscal prudence while ensuring steady revenue growth. With a projected GTR growth of 10.5-11%, the government aims to strike a balance between realistic targets and leveraging strong PIT and GST collections. Gross Tax Revenue Growth Projected at 10.5-11% However, challenges in CIT and excise duty collections underscore the need for sustained efforts to boost corporate profitability and optimize indirect tax revenues. The upcoming Budget will be crucial in setting the stage for India’s fiscal and economic trajectory in FY26.
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