With the economy showing signs of returning to normalcy, things have started to brighten on the revenue side, after the lows of the first quarter, but the government is going to close the year with a lower than budgeted tax mopup.
There is pressure on resources amid demands for higher spending to rev up economic activity, especially in infrastructure and other job-generating sectors.
The Centre has also decided to bear the burden of the vaccine bill, at least in the initial round, resulting in additional pressure on finances. Certain estimates have pegged vaccine bill at over Rs 60,000 crore.
The initial order of 11 million shots, for which orders have been placed, is estimated to cost around Rs 220 crore and will be funded via PM Cares Fund.
During lockdown, there had been suggestions, including from tax officers, to impose a cess or a surcharge on income to fund the tax deficit but the finance ministry had dismissed them, arguing that it was not the right time given the drop in income levels.
It opted to jack up excise duty on petrol and diesel, with states following suit not just on petrol but also liquor. While the levies on liquor have been reduced, the Centre has refused to cut excise on auto fuel, which is now selling at record levels.
With economic activity resuming, a section in the government and tax consultants are not averse to a small levy in the name of vaccines.
“A 1-2% cess on income may not have a key impact,” said a consultant with a leading firm. In the past too, the government had resorted to a levy of a health cess.
While abolishing cesses and surcharges on indirect taxes, the government has retained compensation cess on so-called luxury and sin goods like carscoal and tobacco to make good any losses of states due to GST rollout.