Finance Minister P. Chidambaram is clearly betting big on corporate tax and service tax collections to help the Centre reclaim the peak tax-GDP ratio of 11.9 per cent achieved in 2007-08.
At a time when economic conditions are weak both in India and in developed markets, Budget 2013-14 has projected 12 per cent growth in corporate tax collections and 45 per cent increase in service tax collections for next fiscal.
In 2012-13, corporate tax collections grew 11 per cent as against the budgeted growth of 16 per cent, official data showed.
The indirect tax targets for 2013-14 are ambitious, but achievable if the Centre were to make rapid strides in taxation of services, which account for over 50 per cent of the GDP, economy watchers said.
However, the Centre has fallen short of indirect tax collection target for 2012-13 by about Rs 35,000 crore. In the case of direct taxes, the revised estimate for 2011-12 is lower by about Rs 5,000 crore.
In 2007-08, the tax-GDP ratio touched a peak of 11.9 per cent. It had come down to 9.91 per cent in 2011-12.
“These ratios (as in 2011-12) are one of the lowest for any large developing country and will not garner adequate resources for inclusive and sustainable development. In short term, we must reclaim that peak (11.9 per cent in 2007-08),” Chidambaram said in his Budget speech today.
For direct taxes, the Centre has pegged the growth target at 17 per cent for the next fiscal. In the case of indirect tax, the growth target has been pegged at 12 per cent.
The biggest shortfall in indirect tax collections for 2012-13 is expected in excise duty at about Rs 22,000 crore. Next year’s target has been set at Rs 1,96,804 crore which is about 14 per cent increase over the previous year’s number.
“This target seems to be ambitious since there is no increase in the excise duty collections and the industrial activity has generally been slow,” Manish Mishra, Executive Director, Khaitan & Co, a law firm, said.
Mishra also felt that that customs duty targets seems ambitious in view of the industrial slowdown and no significant increase in duty rates.
Meanwhile, Chidambaram today announced proposal to set up a tax administration reform commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of Indian tax system.