Going by the data on indirect tax collections from April to July given out by the finance ministry, there?s little evidence of a slowdown. These taxes?customs, excise duties and service taxes?the ministry data show, grew by over 27% over those in the corresponding period last year. Indeed, given that the budget targets for the entire year project a growth of 17.4%, this showing is quite fantastic, and suggests that budget targets will be exceeded smartly. The numbers, however, need to be interpreted with care. For one, a 27% growth is far lower than the 38.3% growth in 2010-11 in these three categories of indirect taxes?so even the 27% is a clear slowing. Two, there could be a problem with the data. Data on the finance ministry?s Website for the April to June period isn?t directly comparable with what the ministry gave in the briefing (for April to July) since the Website data is on a net basis (after removing the share of the states) while the other is on a gross basis. If you add back the states? share to the Website data, as you should, the data is compatible, except in the case of customs duties. In this case, the adjusted April to June data show customs duty collections of R57,600 crore while the April to July data give a figure of R50,705 crore! It would be nice if all the data was from the same series and the obvious inconsistencies corrected.
Interestingly, the indirect taxes data is at sharp variance with the direct taxes data?while the former is said to have risen 27%, the latter fell 8%. The obvious reason for this is inflation. While inflation raises revenues, and therefore the indirect taxes which are based on prices, the same doesn?t apply to corporate taxes?indeed, most companies are showing slowing bottom line growth. While that would explain direct taxes slowing, it doesn?t explain why they?ve fallen. If you take direct and indirect taxes, a logical thing to do while assessing overall economic performance, you find the growth in the April to July period is just under 11% as compared to the budget target of 18.5%. The Central Board of Direct Taxes has explained the fall by saying there is a surge in tax refunds, but it does seem a bit strange that this should be continuing four months into the financial year?in which case, you?d think the tax data put out would give data net of the refunds. At a time when there is considerable confusion over just how badly growth is slowing?the IIP is still very volatile?you?d hope that the tax data would at least give you a clear picture.
