Finance Minister Nirmala Sitharaman has limited options to cut personal income tax in the budget.
Budget 2020, Income Tax, Corporate Tax
Due to continued softening in the economy, the revenue from tax in the current financial year may be less than the target of Rs 2 lakh crore. Due to this, Finance Minister Nirmala Sitharaman has limited options to cut personal income tax in the budget. Sources directly related to the case say that in the current financial year, revenue from personal income tax and corporate income tax can be about Rs 1.5 lakh crore less than the target. Apart from this, due to the continued softening in the economy, indirect tax revenue received from the Goods and Services Tax (Revenue) may also be less than the target of Rs 50 thousand crore.
Corporate tax has been cut
Sitharaman had announced a cut in corporate tax rates in September last year to give a boost to the slowing economy. There were expectations that she could announce a similar relief for personal income tax in the budget. However, due to the possibility of falling below the tax revenue target and being too far away from the government’s disinvestment target, options for doing so have become limited.
Pressure on government treasury increased
The biggest reduction of 28 years in corporate tax rates has caused a burden of Rs 1.45 lakh crore on the exchequer. Apart from this, the government had also announced withdrawal of surplus on long and short term capital income of foreign portfolio investors and domestic institutional investors. This has put a pressure of Rs 1,400 crore on the exchequer.
Bad year in terms of tax revenue
Several experts, including former finance secretary Subhash Chandra Garg, have indicated that the revenue target from tax could be less than Rs 2 to 2.5 lakh crore. He recently said in a blog that 2019-20 is going to be a bad financial year from the perspective of tax revenue. 2.5 lakh crore (1.2 per cent of GDP) is expected to be less than the tax revenue collection target.