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Tax collections miss target by wide margin

Oct 11, 1999

The growth in tax collections has missed the projected target by a wide margin of 11.5%. Consequently, worries regarding the revenue deficit have resurfaced and, according to newspaper reports, the need for a tax surcharge may arise. While corporate taxes have fallen short of projections by 7.7%, income tax were 13% short of projections. The budget for financial year FY00 had projected a GDP growth of 6% and a fiscal deficit of 5.2% (pre adjustment for small saving deposits). The premise of these projections was that the Indian economy was staging a sharp recovery and added to that the recovery in international (Southeast Asian) economies would help revive demand for exports.

However, the projections have not been on the mark. The prolonged election period and the border tension at Kargil suppressed business confidence resulting in relatively slower growth in industrial activity and burgeoning government expenditure (especially defence related).

The indication that a surcharge may be levied is right in reasoning but its timing is totally out of sync. The Indian economy needs all the support it can muster up in order to lift industrial growth to higher levels. A surcharge will drain away corporate resources as well as household savings, which in turn will have an adverse effect on investment and consumption respectively. This could have serious implications for the economic recovery.

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