Recently, the indirect tax department has requested the government to reduce the tax collection target for 2020 owing to slow economic growth in the country. However, the government has politely declined this request made by the CBDT. This has also increased the difficulties in the upcoming interim budget that is going to be presented by the finance minister, Nirmala Sitharaman, on July 5, 2019.
Two official sources associated with this matter has revealed that Central Board of Direct Taxes (CBDT) has requested the new finance minister to reduce the direct tax target for 2020, which has been set around INR 13.80 crores. This new direct tax target limit is approximately 15% higher than the tax target limit of FY 2019, estimated to be around INR 12 crores.
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However, unlike the early estimates, the direct tax collection remained 11.4 crores in 2019. What this essentially means is that the new direct tax target for FY 2020 is actually 21% higher than the last fiscal, which looks unlikely to be achievable considering the slowdown in economic growth.
If the government comes up with an idea of reducing the tax collection limit without decreasing the expenses, then it will have to take higher loans. So, applying such a strategy will not allow the government to meet its fiscal target for the upcoming fiscal year. For FY 2020, the government has set a fiscal target of 3.4% of the GDP, similar to last year. The government has been forced to cut down its expenses to meet this fiscal goal last year.
The poor economic growth has increased the difficulties in tax collection for the authorities. In FY 2019, India has recorded the slowest GDP growth rate of 6.8% in the last five years. The signs of a faster recovery are also minute in the upcoming fiscal year. To add more, the sale of automobiles and consumer goods have also slowed down this year. Seeing such a scenario, it is implausible for the indirect tax department to meet the tax collection target set for this year.
Although Finance Secretary, Subhash Garg has commented that due to temporary issues the GDP growth rate has slowed down in the first three months of FY 2019. He further said that slowdown will continue for the upcoming few months too. Seeing such circumstances, tax experts have said that it would be challenging to meet the tax collection targets set by the government. Crisil Chief Economist, D.K. Joshi, said, “Tax authorities will have to walk against the stream to achieve the goal.”
