A major beneficiary of the pick-up in the economy has been the ministry of finance, which has seen its tax collections zoom up by 26.4% in April-October 2010-11. Not only is the growth of tax collections in sharp contrast to the 7.5% decline in the corresponding period of the previous year but it is also way above the 17.9% growth estimated in the Union Budget estimates for 2010-11. And the pick-up is no flash in the pan as the cumulative growth of tax collections has exceeded a quarter in six of the last seven months.
The tax buoyancy ratios, which measure the percentage increase in tax revenue following a 1% increase in the tax base or GDP, also point to the positive trend. Numbers for the first half of the fiscal year shows that the tax buoyancy ratio has shot up to 1.3, which indicates that tax collection has more than kept pace with the change in base.
What is striking is that the buoyancy in tax collections varies sharply across different taxes. Most of the improvement in overall tax buoyancy have been contributed by two indirect taxes, namely customs and excise where the buoyancy has been 3.1 and 2.1 respectively. This is mainly due to roll-back of excise and customs duty cuts following partial roll-back of the stimulus package provided during the global recession. Buoyancy of services tax has been only 0.8, meaning collections haven?t kept pace with GDP growth.
And what is of more worry is the low buoyancy of direct taxes. Despite improved corporate performance and high advance tax payments, corporate tax buoyancy was only 0.9 and the case was worse for income tax where the buoyancy was only 0.7, the lowest across all taxes. So, it is reasonable to presume that the direct tax concessions in the budget seem to have significantly impacted direct tax collections in a negative way.