Finance Minister Nirmala Sitharaman surprised the markets yesterday by lowering the fiscal deficit target for the financial year 2024-2025 to 5.1% of the gross domestic product (GDP).
In the current fiscal year, improved tax buoyancy led to a fiscal deficit of 5.8%, surpassing the budget estimate of 5.9%. Sanjay Malhotra, the Revenue Secretary, attributes the impressive tax buoyancy of 1.4 times to a concerted effort by both taxpayers and tax authorities.
“Tax buoyancy of 1.4 times is a combined effort of the taxpayers and the tax authorities. A lot of it is, of course, due to the use of technology, third-party information coming in, and a lot of it is also because of the simplification and rationalisation of taxes that have happened over the years. So you make things simple, remove disputes, and get taxes today rather than hoping to get larger tax revenues in the future. So it’s a combination of the efforts of the last four or five years that are beginning to pay the dividend,” Malhotra stated in an interview with CNBC-TV18.
Malhotra notes that personal income tax has shown remarkable growth, surpassing the performance of corporate tax. The success in personal income tax can be attributed to various measures, including the use of technology and the rationalisation and simplification of tax processes.
Sanjay Malhotra also highlighted the substantial expansion of the tax base under the Goods and Services Tax (GST) and income tax regimes. The GST tax base has doubled since its implementation, reaching over 140 lakh from 67 lakh in less than seven years. Similarly, the income tax base has grown 2.4 times in the last decade, reflecting a significant widening of the taxpayer base.
Looking ahead, Finance Minister Nirmala Sitharaman has set an ambitious fiscal deficit target of 4.5% for the financial year 2025–26 in the interim budget presented on February 1.
Watch the accompanying video for the entire discussion