constituted - of Planning Commission

Chapter-2Tax RevenueEstimating tax revenues for five years is a challenging task in itself, it is moreso in an economic environment wherein there was a structural break in therecent past and in a milieu of uncertainty in domestic as well as the globaleconomy. The uncertain economic environment is only a transitory phase andshould not cloud the judgment or forecast of the medium term. The use of trendgrowth rate to estimate the tax revenue for the Twelfth Plan would be clearlyinappropriate because of the structural break. The period 2004-08 witnessed asurge in growth in direct taxes as well as service taxes attributable to a wideningof the tax base. Following the global crisis and demand slowdown, fiscalstimulus package with a cut in indirect taxes resulted in moderation. Whileapparently some spill over is still there in terms of negative impact, it isunlikely to continue in the next plan period. It is in this context that forestimating the Twelfth Plan resources, there is a need to use a robust judgmenteven as methodical estimates are considered.Base Line ForecastThe Sub-Group on Tax Revenue used projections based on a moving average ofthe year-on-year changes in tax ratios with some variations. This Groupconsidered the sub-Group’s estimates as a base line forecast. Under this baseline forecast, the assumed nominal GDP growth rate is 14.5 per cent andmoving averages from 2003-04 – 2011-12 (BE) are taken for projecting theavailable resources for the Twelfth plan. The following paragraphs summarisethe base line forecast:Direct TaxesThe growth in nominal GDP was taken as the key variable for projecting themajor direct taxes, i.e. tax on the income of corporations (corporation tax) andWorking Group Report on Centre’s Financial ResourcesPage-13