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2020-01-25 - Cut in personal tax possible: CLSA

Mumbai: The government could cut personal income tax rates in the Union Budget on February 1in order to revive growth, said foreign brokerage CLSA.

The brokerage said any income tax cut would be seen as a boost for discretionary companies. “To spur consumption, we see a good chance the government may consider some reduction of the personal income tax rate. We estimate this could pull down income tax collections by 20% or Rs 1 tn ( trillion or lakh cr). However, higher compliance the continued addition of new income tax assesses may limit the actual YoY (year on-year) fall to 5% in FY21,” said CLSA.

The brokerage also said the slippage in fiscal deficit for FY20 will be limited to 3.6% against the budgeted estimate of 3.3% as a large miss in tax and disinvestment receipts may be partially offset by the government curbing expenditures.
CLSA also expects the FY21 fiscal deficit to be contained at 3.4% as revenue shortfall from any tax cut may be funded by privatisation-led higher disinvestment receipts, higher telecom revenue and moderation in revenue expenditures.

“A decline in income tax collections and the absence of a one-off RBI transfer may be offset by higher disinvestments and telecom receipts. Privatisation of large PSUs, including BPCL, may allow the government to budget for Rs 1.3 trillion as FY21 disinvestm disinvestment receipts,” said CLSA.

“A spectrum auction round and partial payment of AGR dues may more than offset the deferred spectrum moratorium and allow telecom receipts to rise to Rs 650 billion,” said CLSA.