FY 24 Budget is likely to project a growth in direct tax revenues, that is more than the forecasted nominal growth rate of GDP. The Budget is likely to forecast growth in direct tax collection in FY 24, in the range of 10.5% to 12%. Nominal GDP growth rate expectation for the year is likely to be between 10% and 11%.
Direct taxes are made up of income tax and corporate tax. Direct tax collection in FY 24 is likely to exceed the rate of nominal growth rate of GDP because of more efficient tax collection by the government. Efficiency of tax collection has improved significantly in FY 23. More people are paying taxes and filing tax returns.
The level of corporate tax collection in the year will be affected by the impact of economic slowdown on the profitability of Indian companies. The economic situation is very likely to exacerbate in the year. This will happen both at the domestic level and at the global level.
Both central and state governments are expected to increase their bond issuances in FY 24. Governments raise debt money by selling their bonds. These bonds are called Government Securities in India. Bond issuance of central government is likely to increase year-on-year by around 6% to Rs 16.4 trillion in FY 24. Budgetary target is likely to be set around this number.
In the year before general elections, the central government is more likely to increase its expenditure. The government will do this to give a boost to the economy. So actual issuance of bonds may turn out to be even higher than projections.
Increased borrowing by governments through issuance of bonds raises interest rates in general. So it becomes more expensive for the private sector too to raise money through borrowings. Government borrowing in domestic currency is assumed to be mostly risk free. This is because the government in the worst case scenario can get more currency printed to pay off its debt obligations. The bonds issued by corporate sector is never risk free. There is always some probability that the private company or entity can default on its debt. The private entity does not have the privilege to print currency when needed. So credit risk of private bonds is always higher than that of government bonds. Therefore, the interest rate demanded on private bonds is almost always higher than that on government bonds. So if the interest rate on the government bond goes up because of increased borrowing by the central government, that on private bonds will also go up.
Increase in interest rates by RBI coupled with the increase caused by increase in government borrowing may prove to be a double whammy for the private sector in the year.
The Budget for FY 24 is likely to factor in a lower indirect tax collection growth for FY 24. Indirect taxes are expected to grow year-on-year (Y-o-Y) by 7%-9% in FY 24. Budgetary target growth for indirect tax collection is likely to be in this range.
Indirect taxes are taxes other than income and corporate taxes. These taxes include GST, customs duty, excise duty etc. One reason why indirect taxes are expected to register a slower growth is that economic conditions may deteriorate at the domestic and global level in FY 24. This will result in lower collections of custom duties.
Custom duties are taxes imposed on exports and imports. A global economic slowdown will lower demand for India’s exports. Government imposes export duties on a number of export items. Lower exports will result in lower collection of export duties. High inflation and lower economic growth at the domestic level will lower the real income of Indians further. This will lower the demand for imported items in India. Indian Government imposes import duties on a large number of imported items. Lower import demand will result in lower collection of custom duties for the government.
Excise duty is still levied on petrol, diesel and alcohol. Other items are now covered under the GST regime. 2023 is the last year before the general elections. The General Elections will be held in 2024. Therefore, the government is more likely to cut down excise duty on petrol and diesel further. This will also lower indirect tax collection of the government.
GST collections are likely to go up further. This will happen mainly on account of improvement in efficiency of tax collection. Increased activity in some Services will also contribute to increase in GST collection.
The US Federal committee's meeting will conclude on March 16, 2022.
No Record Found