Revenue picture robust, govt must trim fuel levies

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Thanks to higher taxes on auto fuels, steeply rising corporate profits, a jump in income tax, and improved imports, the government’s overall tax collection for the June quarter is strong. At Rs 4.12 lakh crore, they account for a quarter of this year’s budget estimates (BE).

The GST collection in July was Rs 1.16 lakh crore, an increase of 33% per annum (y-o-y), indicating that consumption is now easing lockdown restrictions in most parts of the country. It is not going to be advisable to count the chickens just yet. The 3rd wave of the pandemic cannot be ruled out yet, and high commodity prices could crimp corporate profits, albeit only slightly.

Nonetheless, should the economy stay the course, tax collections for FY22, targeted at Rs 22.2 lakh crore shouldn’t be a stretch because given the better-than-anticipated collections in FY21, the rise this year may be a very modest 9.5%. Most economists expect the collections to be a minimum of 12-13% higher.

These will help ease the pressure on the fiscal deficit, which was well below the historical average of 18% in the June quarter budget estimate (BE). As Credit Suisse has acknowledged, this deficit would be modest at 25% of the BE though the first dividend from RBI had not been available.

To be sure, spending increased in June, leaving two-thirds of the year, but interpretation from the North Block suggests that spending throughout the year will be quieter, and targets will fall. Spending by most departments in Q1FY22 has learned to possess stayed within 20% of the year’s BE, against the available limit of 25%. An FE estimate showed savings for the Centre might be the maximum amount as Rs 1.15 lakh crore within half of the present fiscal.

One reason the center might be keeping expenses on a leash is the concern it may not meet the disinvestment target of Rs 1.75 lakh crore. The government diary during this department is nothing to write down home about; Indeed, the privatization of BPCL, the listing of LIC, and therefore the sale of Air India are all taking their own time.

Not surprising then, finance secretary TV Somanathan recently told FE the scope for an enormous fiscal expansion is limited. The necessity to rein within the fisc at the targeted 6.8%, on the rear of a 9.3% deficit in FY21.

But if the money transfer is avoided – because the beneficiaries are trying to save a lot instead of spending – there is certainly a strong case for reducing the tax on diesel if there is very limited stimulus. The Centre’s justification is that the weight of auto fuels in the inflation basket is low and cannot be accepted.

The inflation of diesel has pushed up prices of a variety of products, at a time when prices of all goods and services are already high. It provides a little or no direct stimulus post the pandemic. The Centre must do its bit to stay inflation reined in.

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