The higher revenues are projected to push up capital spend of the government.
The tax-GDP ratio will see an increase of 30 basis points (bps) each in 2018-19 and 2019-20 due to the impact of demonetisaion and the roll-out of the Goods and Services Tax (GST), according to the Medium-Term Expenditure Framework (MTEF) Statement.
The GST and increased surveillance will boost tax revenues over the next few years, taking India’s tax-to-GDP ratio close to 12 per cent by FY20.
The medium-term expenditure framework released by the government shows tax-to-GDP ratio rising 30 basis points each in FY19 and FY20 to 11.6 per cent and 11.9 per cent respectively.
The higher revenues are projected to push up capital spend of the government. It will bring down the fiscal deficit to 3 per cent of GDP and lower the revenue deficit to 1.4 per cent of GDP by FY20.
Tax collections due to the introduction of GST from July 1 to be absorbed in the current fiscal. Higher taxes will allow the government to spend more on creation of capital assets.
The share of capital spending in total spending of Rs 26 lakh crore in FY20 is set to rise to 15 per cent, compared with 14.4 per cent in FY18 in a total spending of Rs 23.4 lakh crore.