Union Budget 2018: Government Has Been Conservative In Revenue Estimates, Credit Suisse Says
The government’s revenue projections in Budget 2018 are “conservative”, according to Credit Suisse. Here’s the math.
The government’s revenue estimate is conservative and it may earn more in the next financial year as corporate earnings improve and Goods and Services Tax collections rise, according to Neelkanth Mishra, India equity strategist at Credit Suisse.
“Corporate income tax growth in particular can be meaningfully higher than currently budgeted, with corporate profitability improving,” Mishra told BloombergQuint in an interview.
The pace of corporate earnings cuts has stalled in the last four to five months and the Nifty earnings per share is expected to grow strongly next year Ie; FY19. Even if Nifty earnings per share growth were to be downgraded from the current 23 percent to 14-15 percent year-on-year, it would be the highest in many years, and also show up in better corporate tax collection, he said. Personal tax could also, in all likelihood, rise as the taxpayer base increases, he added.
The Budget estimates corporate income tax and personal tax at Rs 6.21 lakh crore and Rs 5.29 lakh crore, respectively, for 2018-19.
The market has underestimated FY18 GST collections and hence believes the FY19 target to be aggressive, said Mishra. But, he claims, the converse is true.
In the ongoing financial year, GST collections as reported monthly appear to be lower than the aggregate GST because the numbers are not updated on a monthly basis by the government, he said.
“Collections this year are higher than the monthly rates announced, and much of unallocated Integrated GST is Central GST,” Credit Suisse said in a post-Budget note authored by Mishra.
Mishra estimated the monthly collection in 2017-18 to be about Rs 96,000 crore. The Credit Suisse note also explains why the FY19 revenue target is less ambitious than it seems.
“Some observers have calculated the assumed GST collection rate in FY19 to be Rs13.5 trillion, taking SGST = CGST. However, this is a flawed assumption. Unallocated IGST has much more of CGST than SGST.”
Here is Neelkanth Mishra explaining the GST revenue math.