Indirect tax collection rose 20% to R1.68 lakh crore in the first half of the fiscal as compared to the corresponding period last year, reaching 43% of the trageted collections for the entire fiscal. This is a much improved performance compared to a mere 7% growth in the net direct tax collection during the April-September period. However, tax officials have warned that indirect tax revenue would also be under stress in the coming months if industrial activity in the country slows down further. With the difficulty in controlling expenditure at targeted levels, the tax revenue figures for the first half of the fiscal give further credence to the forecast that the fiscal deficit target of 4.6% of GDP could be missed.
The target also looks challenging as the finance ministry has decided to borrow R53,000 crore more than the budgeted level. The government will now borrow R2.2 lakh crore between October and March as against the original plan of R1.67 lakh crore. The likely capital infusion of R15,000 crore in State Bank of India would be an extra onus on the managers of government finances.
A month-wise analysis of the indirect tax figures gives credence to the concerns expressed by taxmen. According to provisional figures, customs duty realisation in September declined 10.9% to R10,126 crore, while central excise realisation dropped marginally by 0.3% to R11,417 crore.
As per government data, customs collection during the six-month period stood at R73,247 crore, an increase of 20 % over the same period of the previous fiscal. The central excise collection rose by 14% to R58,964 crore and service tax realisation increased 35.6% to R 36,459 crore.
Government officials said that indirect target collections could not reach the half-way mark of the Budgeted target of R3.92 lakh crore, mainly due to reduction in petroleum goods duties, which has hit the customs and excise mop-up during September. Besides, there was moderation in industrial output growth. The industrial production growth rate during July moderated to 21-month low of 3.3%.
“The collection trend could be upset in coming months, if industrial activity slows down further. Bulk of indirect tax mop up would be in the last few months of the fiscal,” said the official.
The redeeming feature of the September data was 29.6% rise in service tax realisation. The mop-up during September was R6,967 crore as against R5,374 crore in the same period last fiscal. Total indirect tax collection in September was at R28,510 crore, up just 1.2%.
In June this year, the government removed the 5% customs duty on petroleum crude, reduced the import duty on petrol and diesel by 5% and also abolished the Rs 2.6 per litre basic excise duty levied on diesel, which cost the exchequer R49,000 crore. Besides, the downgrading of SBI’s ratings by Moody’s would put pressure on government to pump in money in the bank, thereby making achieving deficit target a major problem. The rating agency downgraded SBI’s rating from C- to D+ , which reflects “modest intrinsic financial strength, potentially requiring some outside support at times”.