India can raise 100 billion rupees ($2.05 billion)-120 billion rupees more in tax revenue than estimated by its annual budget, as previous stimulus packages and an easy monetary policy help boost consumption, a senior finance ministry official said Monday.
India is targeting 6.41 trillion rupees of gross tax revenue in the fiscal year that started April 1, up 2% from the 6.27 trillion rupees collected a year earlier.
"The budget estimates have been conservative since we felt there was no need to set a higher target, which we may not be able to achieve if the economy suffers some external shocks," the official, who asked not to be named, told Dow Jones Newswires.
According to the budget estimates for this fiscal year, the government expects a near 16% annual rise in corporate tax revenue to 2.57 trillion rupees.
But it is likely to exceed this target as corporate earnings are likely to be robust in the three months ended June, as indicated by bellwether Infosys Technologies Ltd.'s better-than-expected 17% rise in its net profit.
A revival in industrial output, triggered by consumer goods, is also expected to increase direct tax collection, despite a reduction in the government's personal income tax revenue target for this fiscal year.
India's May Industrial output rose at its fastest pace in eight months to 2.7%, sharply higher than the market expectation of a 1.3% expansion.
Consumer goods output in May rose 1.2% from a year earlier, reversing a 4.7% contraction in April, evidence that demand in the sector is on the upswing.
In an effort to boost demand, Finance Minister Pranab Mukherjee raised the exemption limits on personal income tax to keep more cash in the hands of consumers.
The move resulted in the government forecasting this fiscal year's personal income tax revenue at 1.13 trillion rupees, nearly 8% lower than the 1.23 trillion rupees a year earlier.
"This sacrifice was needed to help boost spending within the economy," the official said. "As the economic expansion starts to gain pace, we expect direct tax collection will gather momentum."
The economy grew 6.7% last fiscal year, slowing from a 9% expansion a year earlier. The government expects it to grow between 6.25% and 7.75% this fiscal year.