From the Opinions Editor: Tax cuts have hemmed in Centre and state governments, shrunk their capacity to spend |
Dear Express Reader,
Whether by accident or design, governments, at both the central and state levels, are being hemmed in. This shackling of the general government has occurred slowly – first, by the lowering of the corporate taxes in 2019, then by the rejigging of personal income tax slabs in the Union budget 2025-26, and now by the rationalisation of GST slabs. The net impact of these fiscal steps — even as the direct and indirect tax base has significantly expanded over the past decade — is constrained finances, forcing governments to restrain expenditure, despite the bluster of lavish spending.
The estimates of the extent of revenue foregone due to these tax cuts vary considerably. Nonetheless, they are quite significant. For the corporate tax cuts, the initial estimates pegged the revenue foregone at Rs 1.45 lakh crore, while in the case of the income taxes, it was around Rs 1 lakh crore. For GST, while precise estimates are difficult to arrive at, they will reflect slowly in tax collections.
This shackling of the general government is clearly visible. Over the past decade, the Centre’s tax collections have barely inched upwards – net tax revenues were 7.2 per cent of GDP in 2014-15 and were budgeted at 7.9 per cent in 2025-26. Collections may, in fact, end up being lower........