The government’s indirect tax collection is expected to increase by 8.3% in the financial year 2025-26 (FY26), according to a report by ICICI Bank.

The report also noted that this growth is higher than the 7.1% increase seen in FY25 and is mainly driven by a rise in GST revenue from strong urban consumption. It said “The increase is driven by higher goods and services tax collections, which in-turn is explained by a boost to urban consumption”.

With the economy improving, corporate tax collections are also expected to grow at a much faster pace. The report estimated corporate tax collection to rise by 10.4% in FY26, compared to a 7.6% increase in FY25.

On the expenditure side, the government’s overall spending is projected to grow by 7.4% in FY26, slightly higher than the 6.1% increase in FY25. This suggests the government is planning to spend more in the next financial year to support economic growth. The report highlights that capital expenditure (capex), which is used for infrastructure development, is expected to grow by 10.1% in FY26. However, as a percentage of GDP, capex is projected to remain flat at 3.1% in both FY25 and FY26.

Indirect Tax & Corporate Tax: What Else?

Within capex, the allocation for roads and railways is remained unchanged, while spending on housing and defense has been increased. The government’s fiscal deficit, which represents the gap between government revenue collection and expenditure, has been revised downwards to 4.8% of GDP in FY25, compared to 4.9% projected earlier.

In absolute terms, the fiscal deficit is estimated to be Rs 15.6 lakh crore in FY25 Revised Estimates (RE), compared to Rs 16.1 lakh crore in the Budget Estimates (BE) for the same year. This shows that the government is making efforts to manage its finances efficiently while maintaining a balance between spending and revenue generation.

One of the biggest positive for India is a moderate current account deficit. This is on the back of much more resilient services exports and remittances, even as the trade deficit has been expanding. India’s trade deficit is seen expanding from USD 245bn in FY24 to USD 277bn in FY25, but the pass-through into current account is only USD 9bn. The same has been possible since remittances and services exports are seeing meaningful increase.

The report suggested that India’s tax revenue and government spending will continue to grow in the coming financial year. Higher GST collections, strong corporate tax growth, and controlled fiscal deficit are key indicators of a stable economic outlook for FY26.

(ANI Copy)

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