Editorial: Taxing times

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SummaryDirect taxes could be on target, shortfall in indirect ones

Given direct tax collections grew 13.2% in the April to November 2013 period, chances are the government will be able to meet its 18.1% growth target for the year. While the economy growing slightly faster in the second half of the year will help, the major reason for this is that there is always a pick-up in tax collections in the second half of the year. In FY13, for instance, direct tax collections were R2.49 lakh crore in the April to October period but rose to R3.04 lakh crore in the November to March period. Indeed, in every year, there is a distinct jump in tax collections in the second half—in FY12, November to March direct tax collections exceeded the April to October ones by 25%, and in FY11, the figure was 19%. A strict use of that rule, of course, may not be strictly correct since what boosted tax collections in FY13 despite a sluggish GDP—roughly comparable to this year—was the fact that the government had raised the excise and service tax rate by a flat 2 percentage points. But given the buoyancy in personal income taxes, more so after the taxman started using his database more effectively, it is possible the shortfall in corporate taxes can be broadly made up.

In the case of indirect taxes, however, unless there is a big jump in the service tax amnesty scheme, collections will fall well short of the ambitious R5.65 lakh crore budgeted, a growth of about 20%. The biggest shortfall, needless to say, will be in excise duty collections where, despite the sharp—in relative terms—jump in manufacturing growth in FY14 over FY13, April to October 2013 collections were 7% lower than those in the same period in 2012. Once you take into account inflation, the real fall is even sharper. Customs collections, similarly, were only 6% higher in the first seven months of the year as compared to the 13.6% hike in budgeted collections—given the nearly flat imports this year, that’s not surprising. Service taxes, similarly, are growing at just half the budgeted rate, again not surprising considering the collapse in the services sector growth in the first half of the year. Sharp cuts in expenditure offer the FM the only way out if he wants to stick to his inviolable red line as far as the fiscal deficit is concerned.

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