Gross Tax Receipts Contract By 15.8% In August Led By Tepid Corporate Tax Mop-up

India's gross tax receipts, comprising both direct and indirect taxes, in August contracted by 15.8% on a year-on-year basis, while also seeing slower growth up to August in the current financial year. This is mainly on account of a dip in corporate tax mop-up during the period and large refunds.

The corporate tax collection during the April–August period reported a dip of 6% to Rs 2.2 lakh crore. The personal income tax, however, showed a growth of 26% during the period to Rs 4.5 lakh crore, data released by the Controller General of Accounts on Monday showed.

"Personal income tax collections may surpass the FY25 Revised Budget Estimates of Rs 11.5 lakh crore, unless large refunds are released in the latter part of the fiscal, while corporation tax inflows may print in line or slightly lower than the target," said Aditi Nayar, chief economist at ICRA.

During this period, net tax revenue rose by 8.7% to Rs 8.73 lakh crore. Year-on-year, non-tax revenues expanded by 59.6% to Rs 3.34 lakh crore, boosted by the RBI dividend, and revenue expenditure grew by 4.1%, while capex contracted by 19.5%.

However, as of Sept. 17, corporate tax collection rose 10.5% to over Rs 4.52 lakh crore. The net personal income tax collection grew 19% to Rs 5.15 lakh crore.

Meanwhile, the fiscal deficit—the gap between the centre's expenditure and revenue—narrowed to Rs. 4.4 lakh crore, or 27%, of the FY25 budget estimates between April and August from Rs. 6.4 lakh crore in the same period a year ago. This was mainly driven by the RBI's dividend payment in the early part of the fiscal as well as the contraction in capital expenditure. 

The July Budget has pegged its fiscal deficit target at 4.9% of the gross domestic product, compared with 5.6% in the previous financial year, which was lower than the revised estimates of 5.8%.

Total government expenditure during the period was Rs 16.52 lakh crore, or 27.1%, of the annual target, against Rs 16.72 lakh crore in the same period of the previous year.

Capital expenditure stood at Rs 3.01 lakh crore during the period, or 16.3% of the annual estimate, down from Rs 3.74 lakh crore or 37.4% of the annual estimates for FY24.

"Given the trends in capex during April-August 2024, the GoI needs to incur a capex of ~Rs. 1.2 lakh crore per month during the last seven months of the fiscal, which portends an ambitious expansion of 41% relative to the same period of FY23. We believe that sustaining such a high average monthly run rate seems improbable and expect the capex target of Rs 11.1 lakh crore for FY25 to be missed by a small margin," Nayar explained.

Experts are of the view that a miss in capex target is expected to provide some cushion to absorb the shortfall on account of disinvestments and taxes. This will also keep the fiscal deficit in line with revised estimates of 4.9% of GDP at the current juncture.