Windfall tax, new export, import duties may fetch exchequer over Rs 1 trn

Likely to boost elbow room for additional govt capital expenditure; experts see net estimated gains of 0.2-0.3% of GDP on fiscal revenues

The government’s new levies could help balance the Budget and leave room for more money to be spent on infrastructure like roads.

The total additional amount collected by the new levies is likely to be around Rs 1 trillion, according to estimates by global financial services group Jefferies and the Mumbai-based Emkay group. The government is likely to raise between Rs 40,000 crore and Rs 50,000 crore from new taxes on crude oil production; petroleum product export duties are likely to bring in around Rs 40,000 crore, and the gold import duty is expected to net Rs 20,000 crore, according to Jefferies data (see chart 1).

The government imposed duties on gold amid a surge in imports that had 107 tonnes coming in during the month of May. Money sent abroad to buy gold can worsen the situation with respect to the deficit between what India earns and spends abroad — called the current account deficit in economics. It also imposed taxes on crude production amid windfall gains from high international prices; as well as on exports of products like petrol and diesel.

The moves on crude and petroleum could have a fiscal impact equal to 0.4 per cent of India’s gross domestic product, according to a July 4 ‘Fiscal Accounts’ note from Emkay Global Financial Services. Around half of this may be used to fund oil marketing companies’ under-recoveries. A windfall tax may also affect the government’s income from public sector oil companies, suggested the note by lead economist Madhavi Arora. She added that an ad valorem tax that moves in proportion to the underlying value may have been useful as it would automatically adjust prices in a volatile crude oil market.

“Overall, we assume net estimated gains of 0.2-0.3 per cent of GDP on fiscal revenues,” it said.

The government’s earnings from tax and non-tax sources (called revenue receipts) was up 1.96 per cent for the first two months of the financial year 2022-23 (FY23), compared to the corresponding period in FY22. The previous year had anomalies because of the pandemic. A comparison with FY20, which would cover April and May 2019, shows revenue receipts are up 2.5 times even as capital expenditure is up 2.2 times.

The government has spent Rs 1.07 trillion on capital expenditure in the first two months of the financial year, according to data from the Controller General of Accounts. The corresponding figure in FY20 was Rs 47,703.

The latest round of taxes may help boost the elbow room available for additional capital expenditure according to a July 6 strategy report from the Jefferies group, authored by equity analysts Mahesh Nandurkar and Abhinav Sinha. It noted that tax collections were up 29 per cent in the first two months, even as goods and services tax numbers showed a 13 per cent growth rate.

“Weakening of commodity prices comes as a relief for India’s twin deficit worries. Recent fiscal action makes us more confident of government meeting deficit targets & maintaining capex,” it said.

The analysts expect government finances to be able to support around 15 per cent growth in capital expenditure. State-level capital expenditure could be weak, it added.