Tax Talk- Time To Rethink The Personal Tax Slab

In budget FY23, the finance minister announced a revision of Gross Tax Revenues (GTR) to Rs 25.16 lakh crore compared BE Rs 22.17 lakh crore. We had previously forecast FY22 tax income at Rs 25.1 lakh crore, with a possible increase to Rs 26.2 lakh crore. The table that follows shows the RE in GTR and large tax headings in FY22, actual collections until January 2022, and collections in February and March 2021 (taken conservatively)—all added to the actuals until January 2022 to estimate FY22 collections conservatively at Rs 26.25 lakh crore, or nearly Rs 1 lakh crore more than the FY22 RE. (The Rs 25.16 lakh crore in GTR (RE) is primarily the result of corporate tax (CT), income tax (IT), and GST.)

The large disparities originate from our forecast of CT and GST growing to Rs 6.69 lakh crore and Rs 7.08 lakh crore, respectively.

Surprisingly, the administration has cautiously anticipated the tax figures. Looking at the expected tax collection in FY23, GTR is estimated at Rs 27.57 lakh crore, owing mostly to a reduction in Union excise duty on petroleum in December 2021. If FY22’s GTR truly ends up being Rs 26.25 lakh crore, then FY23 BE increases this by only Rs 1.32 lakh crore—a 5 percent rise.

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Taking the actual rise of 9.6 percent of tax collections in BE FY23 (Rs 27.57 lakh crore) over RE FY22 (Rs 25.16 lakh crore), one can predict that FY23 tax revenues may exceed the planned amount by Rs 1-1.5 lakh crore.

The economy is predicted to increase by roughly 17.4 percent in FY23, while latest projections have marginally reduced this forecast. The impact of the Russian-Ukrainian conflict on fiscal resources has yet to be determined. Growth appears to be typical until February 2022, as exports and imports, as well as eWay bills for transportation, have increased. As a result, the real tax collection for FY22 may be higher than the RE.

personal tax

The actual accounts for Dividends and Profits up to January 2022 are Rs 1.41 lakh crore vs a RE of Rs 1.47 lakh crore—96 percent of which has already been received by January 2022. Based on interim dividends declared by various PSUs, we can estimate a Rs 20,000 crore increase by March 31, 2022, totaling Rs 1.61 lakh crore.

The biggest shortfall would be in divestiture, where the target has been reduced to Rs 78,000 crore versus actual collections of Rs 12,036 crore till January 2022. If no divestiture occurs, there might be a shortage of approximately Rs 65,000 crore, which could be somewhat offset by the previously mentioned rise in dividend, balanced by a decrease in expenditure.

Total expenditure in RE FY22 is predicted at Rs 37.70 lakh crore, with actual expenditure by January 2022 at Rs 28.09 lakh crore. According to the RE, there is an additional capex of Rs 1.60 lakh crore and an interest payment of Rs 2 lakh crore. Based on actual payments until January 2022 and the RE, a total of Rs 9.61 lakh crore must be spent.

The budgeted fiscal deficit is Rs 15.91 lakh crore. Until January, the actual FD was Rs 9.37 lakh crore. If the target is not modified, Rs 6.54 lakh crore will need to be borrowed in February and March 2022. Small Savings, which are planned at Rs 5.91 lakh crore in FY22, will contribute significantly to the Rs 6.54 lakh crore.

personal tax slab

Overall, based on tax receipts, it is hoped that they will exceed the RE by Rs 1-1.5 lakh crore. Of course, the uncertainty caused by the Russia-Ukraine war can harm business profitability and raise oil prices, affecting a variety of industries that rely on petrochemicals for raw materials and are unable to pass on additional costs to the end-user.

The CT collected in February-March was Rs 2.09 lakh crore in FY19 (31.5% of the year’s total), Rs 1.64 lakh crore in FY20 (29.4%), and Rs 1.22 lakh crore in FY 21 (26.8%). If one takes the total estimated CT for FY22, then the increase of Rs 1.22 lakh crore is only 18.2% of the year’s total. Given that CT collection in December 2021 (Rs 1.67 lakh crore) was much higher than that of December 2020 as also September 2021 when the advance taxes came in at Rs 1.27 lakh crore, it is conceivable that CT in March will be higher than estimated for FY22.

Overall, the FY23 budget has been frugal. Extra cash generated after paying the 42 percent share to states might be utilised to subsidise the increase in fuel costs faced by oil firms rather than passed on to consumers. According to recent sources, a total of Rs 12/litre must be passed on to offset the impact till March 4, 2022. Oil prices are projected to rise higher, and the government’s present tax collections will assist to mitigate the impact.

Increased tax collection may also allow the government to drastically change and streamline personal tax slabs. The existing seven-slab method, which does not allow for deductions, is difficult. To assist the middle class, which has been harmed by the pandemic and inflation, a three-tiered structure with no deductions is proposed.

It is hoped that when the administration goes to Parliament to get the Budget passed, the tax slabs would be changed.