The robust trend in indirect tax receipts has prompted the finance ministry to defer its plan, announced in the Budget in February...
The robust trend in indirect tax receipts has prompted the finance ministry to defer its plan, announced in the Budget in February, to levy a 2% Swachh Bharat cess on all or some of the taxable services.
Sources in the government said this levy would be implemented this fiscal only, if the indirect tax receipts exhibit a pronounced fall later in the year and look poised to miss the annual target of Rs 6.46 lakh crore. Revenue collection from the customs duty, excise and service tax has grown 37.4% in the first quarter of this fiscal against the full-year target of 18.8%.
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The cess was proposed given the need to raise resources for financing cleanliness and preventive healthcare projects.
The strong growth rate in the June quarter is partly on account of the increase in excise duty on petrol and diesel, withdrawal of the fiscal stimulus given to the automobile and consumer goods sectors and the increase in clean energy cess. Government managers also attribute the trend to a perceived pick-up in industrial activity and consumption. Indirect tax collections had grown a modest 4.3% growth in the June quarter of 2014-15.
“The increase in the excise duty rate on petrol and diesel last fiscal were gradual while the stimulus for auto and consumer goods were withdrawn only in December. We would get the benefit of these decisions from the very beginning of the 2015-16 fiscal,” explained an official. Service tax rate was also raised from 12.36% to 14% from June 1 this year.
While global oil prices slumped last fiscal, the finance ministry raised the excise duty on petrol by R7.75 a litre and on diesel by R6.5 in four increases that denied consumers the part of the retail price cuts that oil marketing companies announced. The two percentage point reduction in excise duty on consumer durables to 10% and the cuts in the duties on cars announced as a stimulus at the beginning of last fiscal was withdrawn in December. This fiscal, the government raised the clean energy cess from Rs 100 to Rs 200 a tonne of coal to finance clean energy initiatives.
Officials said that whenever a decision is taken to levy the Swachh Bharat cess, the government has the flexibility to keep it at below 2% depending on the revenue requirements.
According to the ministry, if the effect of the revenue augmenting measures are removed, indirect tax collections increased by 10.8% in June 2015 and by 14.5% in the first quarter from a year ago, indicating that the “underlying momentum in the economy was improving, across all sectors”.
Recent official data, however, showed an unexpectedly slower industrial output growth of 2.7% in May compared to a revised 3.4% recorded in April, raising doubts about economic recovery and strengthening calls for a further rate cut by the RBI, while a rise in retail inflation noticed recently could force the RBI to stick to the current rates.
The duty increases, together with expenditure cuts, had helped the government limit fiscal deficit for 2014-15 at 4% of GDP, below the revised estimate of 4.1%. In view of the emphasis given on higher public spending to boost economic growth, finance minister Arun Jaitley has deferred the fiscal consolidation roadmap by a year and kept the target for 2015-16 at 3.9% of GDP compared to the earlier target of 3.6%.