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Why Budget 2024 May Set Modest Tax Revenue Targets for FY25?

Considering the potential challenges and uncertainties, the Interim Budget 2024 may aim for modest tax revenue targets in FY25 to balance economic recovery and fiscal sustainability.

  • 3,328 Views | Updated on: Mar 06, 2024

Key Takeaways

  • Budget 2024 prioritizes economic recovery post-pandemic, with a cautious approach to not burden businesses and individuals excessively through aggressive tax targets.
  • It aims for fiscal prudence, acknowledging the need to balance stimulating economic growth and maintaining a sustainable fiscal position in the long run.
  • Considering global economic uncertainties, the budget exercises caution in setting modest tax revenue targets to buffer against potential external shocks that may impact revenue inflows.
  • By avoiding aggressive tax hikes, the budget seeks to maintain consumer confidence, ensuring that households have sufficient disposable income to support domestic consumption.

The Budget 2024 presented on 1 February 2024 was an interim budget, meaning it covered the remaining months of the current fiscal year (FY24) and provided estimates for the next fiscal year (FY25). This Budget is expected to chart a cautious fiscal course, with the Centre signaling a modest 9-11% increase in net tax revenue receipts for the fiscal year 2024-25 (FY25). This strategic move aims to balance economic recovery with the uncertainties posed by global challenges and domestic fiscal realities.

1. Conservative Growth Projection

The Centre’s decision to set a modest target comes from a traditional growth projection for FY25. The government anticipates a 9-11% increase in net tax revenue, pegging it at ₹25-26 lakh crore, a cautious approach given the potential economic variables.

2. Current Fiscal Landscape

In the 2023 budget, the Centre budgeted ₹23.3 lakh crore as net tax revenue. The revised estimate suggests that after devolution to states, the net tax revenue will likely remain at a similar level to the budget estimate, considering a probable shortfall in excise duty collections.

3. Excise Duty Challenges

The excise duty collections for the ongoing fiscal year are anticipated to fall short by ₹45,000 crore from the budgeted target of ₹3.39 lakh crore. With a target of ₹3 lakh crore for the next fiscal, the government is adopting a cautious stance, accounting for potential challenges in meeting excise duty goals.

4. High Base Effect

The modest tax revenue target is also attributed to the high base effect. Tax receipts have surpassed revised estimates in the past two years, prompting a conservative approach to budgeting for the upcoming fiscal year.

5. Government’s Gross Tax Revenue

The government has set its gross tax revenue at ₹33.6 lakh crore for FY24. Devolution to states from this revenue is estimated at ₹10.2 lakh crore. After the transfer, the Centre’s net tax receipt is expected to reach ₹23.30 lakh crore, reflecting an 11.7% increase over the revised estimate in FY23.

6. Independent Assessments vs. Government Projection

Independent assessments project a sharper rise in taxes, with income and corporate taxes expected to grow by 15% in FY25 and GST anticipated to record an 11% increase. The government’s more conservative estimate allows for fiscal flexibility if actual collections exceed expectations.

7. Fiscal Headroom Consideration

A modest tax revenue target provides fiscal headroom, giving the government flexibility if tax collections surpass the projected figures. This approach aligns with the ongoing global uncertainties, allowing for a cautious financial strategy in the face of potential economic challenges.

8. Positive Direct Tax Collections

Despite the conservative approach, India’s net direct tax collections reached ₹14.7 lakh crore by January 10, indicating a robust growth of 19.4% over the same period in FY23. This positive trend demonstrates the resilience of the Indian economy amid challenges.

Way Forward

The intricate interplay of global uncertainties, domestic economic recovery, and evolving market dynamics necessitates a cautious and pragmatic approach. Recognizing the need for economic stability, the budget may adopt a realistic stance, prioritizing sustainable growth over aggressive revenue targets. Doing so aims to foster a conducive environment for businesses, encourage investment, and bolster economic resilience, thereby ensuring a balanced and resilient financial trajectory for the year ahead.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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