Disquieting fall in collections

December 28, 2009 01:05 am | Updated 03:47 am IST

The data on tax collections released recently by the Finance Ministry provide an interesting snapshot of the state of the economy as a whole. During the first eight months of the year (April-November 2009), indirect tax receipts were down 21 per cent from a year ago. On present trends, the budget estimate for all indirect taxes is unlikely to be achieved. Taxes under all the three major heads — excise, customs, and services tax — have reported significantly lower growth. Customs duties have yielded a little over Rs.52,000 crore, against the budget estimate of Rs.98,000 crore for the whole year. Excise collections at Rs.60,000 crore are 56 per cent of the budget estimate, Rs.1,06,500 crore. Taxes on services are close to the half-way mark but, under all heads, considerable ground will have to be covered in the remaining four months. Even granting that tax collections are generally more robust during the last quarter, there is likely to be a significant shortfall in indirect taxes. The Finance Minister’s hope that direct tax collections during the year will offset the decline in indirect taxes is unlikely to materialise. Direct tax receipts during the first eight months are at Rs.1,83,822 crore. If the budget estimate of Rs.3,70,000 crore is to be met, tax collections during the last four months should exceed this figure.

In what is optimistically seen to be a harbinger of things to come, advance tax collections till December have increased by 20 per cent. Buoyancy in this area can be attributed to the rebound in specific sectors rather than broad-based recovery. There is evidence that some companies have cut costs, boosted productivity and rode the downturn better than many others. Economic growth, which during the second half of 2008-09 slipped below 6 per cent, has since been climbing — it posted an impressive 7 per cent during April-September. It is likely that the growth rate is as high as 8 per cent for the whole year. As economic growth becomes more broad-based, tax revenues will certainly pick up. Already, the recovery in exports, reversing a prolonged decline, should augur well for higher customs duty collections. It remains to be seen how the government will balance the need for continuing the economic stimulus provided by way of tax cuts and the need for higher revenue and fiscal consolidation. With major tax reforms on the anvil, it is hoped that the tax system will capture the gains from economic growth more accurately.

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