Much has been written about the interim budget. About the expenditure in 2024-25 at ₹47,65,768 crore estimated to be 6% higher than the revised estimate; the receipts at ₹30,80,274 being 12% higher than the revised estimate; the tax revenue is also expected to increase by 12% with indirect taxes projected to record a robust 9.4% growth and corporate taxes collections also expected to accelerate.
Discussions have also centred around the nominal GDP growth of 10.5% estimated in 2024-25 and the revenue deficit being targeted at 2% of the GDP with fiscal deficit estimated to be 5.1 percent of GDP. All this despite there being no change in the tax rates and certain direct tax benefits being extended (for startups, sovereign wealth funds, some IFSC units) by another year. The disinvestment process continued to disappoint, and the disinvestment target has been reduced (for the fourth consecutive year) to ₹50,000 crore from the target of ₹61,000. Expenditure on subsidies at ₹4,09,723 crore is lesser by 7%. The Centre’s capex spending is expected to increase to ₹11.1 lakh crore from ₹9.5 lakh crore. This will result in the capital expenditure increasing to 3.4% of the GDP from the earlier revised estimate of 3.2%.
There has been an increase in allocation of specific sectors (pharma, MEITY, food processing, automobiles/auto components) in the production-linked incentive scheme and focus on promotion of tourism.
What has not been discussed sufficiently are some more interesting numbers in the receipts budget. It may be recalled that the USP of GST was that cesses will be subsumed. This is because cess, which is collected under the powers vested with the Central government in terms of Article 270 of the Constitution, is money which is not shared with the states — it does not form part of the divisible pool. This was and is a grave matter of concern for the states. Both the 14th Finance Commission and the 15th Finance Commission have commented adversely about this trend.
However, It would appear that the cess continues to be a major source of revenue for the Central government. Health and education cess both on corporation tax and income tax amounting to ₹78,000 crore have been collected as per the revised budget 2023-24. The cess amount budgeted for 2024-25 from these two taxes is ₹83,000 crore.
On the customs side, social welfare surcharge, health cess and agriculture infrastructure and development cess and cess from exports have as per the revised budget 2023-24 contributed ₹43,400 crore with the budgeted amount from these cesses for 2024-25 being ₹44,280 crore. On the central excise side cess from crude oil, agriculture infrastructure and development cess, road and infrastructure cess contributed as per the revised budget 2023-24 ₹1,16,100 crore with the budgeted amount from these cesses for 2024-25 being ₹5800 crore more at ₹1,21,900.
Thus, a total of ₹2,37,500 crore has been the contribution from cesses as per the revised budget 2023-24, with ₹2,49,180 crore being projected as collections from cesses in 2024-25. This is not a small amount and to this extent the states get lesser.
The other disturbing data is at Annex-5 of the receipts budget. This is the tax revenues raised but not realised at the end of the reporting year 2022-2023.
The total of the amounts under dispute between corporation tax, income tax, central goods & services tax (CGST), customs, union excise and service tax are a mind boggling ₹12,21,976.41 crore. The amounts not under dispute, implying thereby that all appeals if any are over and this is revenue due to the government, is ₹9,08,430.67 crore. There are cases above 10 years in this category where the total amount due is ₹1,42,657.07 crore.
A note beneath the table in Annex-5 states that the ‘prominent reason for Tax Revenue raised but not realized in amount not under dispute category are no assets or inadequate assets for recovery, assesses not traceable etc.’ The grand total of the entire tax revenues raised but not realized is a humongous Rs.21,30,407.08 crore. This is substantial potential revenue for a government which needs all the revenue for the developmental work it would like to do. It should not be forgotten that the outstanding liabilities of the Centre are estimated to be about 57 percent of GDP. The interest payments would be around 40 percent of the revenue receipts. Every penny is thus required.
It is incumbent that dedicated teams be created to trace the defaulters and all efforts taken to realize the amounts. As regards the amounts under dispute and pending for periods above 10 years a review of all such cases needs to be done-and where the case does not merit pursuing to withdraw them/drop them and where indeed there is a problem as indicated in the note then to take steps to write-off the amounts ;the effort should be to recover and if not to get rid of the pendency by writing off the amount.
The interim budget had a proposal to withdraw all outstanding disputed direct tax demand up to ₹.25,000. A review should be done of the impact of this on the arrears and the scheme extended to larger amounts which are not recoverable.
Another interesting detail is at 5.01.01.02 of the receipts budget. This is the detail of the customs revenue generated through debit in ledger due to various scrip-based schemes. The amount is ₹37,236.71 crore. The point to be noted is that actual revenue is not received by the government in such cases; the revenue is ‘received’ as debits of scrips.
As the footnote to the receipts budget at 5.01.01.02 explains, "The duty credit schemes provide to an exporter, certain credit amount, which can be utilised for payment of basic custom duty. The duty credit is allowed inter-alia to reimburse taxes/duties/levies suffered on exported goods. The scrips are credited in an exporter's ledger account maintained at custom EDI"
Very many of the schemes which reward exporters are dangerously close to being WTO non-compliant. Most of them have been phased out — the debits are of scrips issued for exports done in the past. The government would do well to focus only on schemes like rebate on state and central taxes and levies (RoSCTL) scheme, remission of duties and taxes on exported products (RoDTEP) or drawback of duties. These schemes only return to the exporters duties of taxes paid by them on various inputs which have gone in the manufacturer of goods which are being exported-they are not subsidies or rewards.
These are areas of concern- however overall consensus is that the Government has shown restraint and rectitude, despite this being a pre-poll budget.
—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
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