Govt likely to meet next year's 3% fiscal deficit goal: BofA-ML

Government is expected to meet its fiscal deficit target of 3% for the next financial year on account of additional revenue from penalty on black money and deposits under the income disclosure, says a report.

According to Bank of America Merrill Lynch (BofA-ML), the imposition of 50% penalty on black money deposits is likely to help the government meet its fiscal deficit target of 3% for 2017-18 and the additional capital would also help to recapitalise PSU banks.

"We expect the Finance Minister to raise additional Rs 1,000 billion or 0.7% of GDP by imposing 50% penalty on black money deposits," BofA-ML said in a research note adding "along with the 0.2% GDP raised under the income disclosure scheme, this should enable the FM to meet 3% of GDP FY'18 fiscal deficit target".

According to the report, the additional revenue should enable the Finance Minister to recapitalise PSU banks without cutting public investments or delaying full payout of 7th Pay Commission award.

"This supports our call that PSU bank capitalisation risks are overdone, as Delhi has every incentive to capitalise to step up loan supply and growth," the report said.

The government has proposed a penal tax rate of 50% to 'incentivise' black money hoarders to switch to formal economy.

Moreover, 25% of black money turned deposits will also have to be parked in RBI notified non-interest bearing deposit account for four years to fund the Pradhan Mantri Garib Kalyan Yojana scheme.

The Ministry of Finance proposes to tax black money unearthed in the future at 75-85%, while, under reporting and mis-reporting will continue to attract 50% and 200% tax rate.