The decline in the tax-GDP ratio over the years and declining share of direct taxes in total tax revenue, clearly suggest that the Central government should emphasize in the Union Budget 2022-23 on substantially improving the tax revenue, Primus Research said in a note.
The policies regarding 'tax effort' could be designed through various ways such as, rationalising tax rates, policies regarding widening tax base and net, and improving tax compliance and tax administration.
This process would have enormous implications on ameliorating economic growth, deficit (in both the absolute term and as per cent to GDP) would come down.
It added that the Budget for FY 2022 should continue to provide more support on the demand side than the supply side by reviving the informal sector and MSMEs.
It is expected that against contraction in revenues, increase in expenditures could collectively revive the aggregate demand in the economy. This could lead to a high growth in the near future, henceforth, reducing the fiscal deficit (estimated to be 6.8 per cent in 2021-22) both in absolute terms and as a percentage of GDP.
In this regard, it is expected that central government would re-assess its ministry-wise allocations, and increase spending on social and economic sectors to boost aggregate demand in the economy.