Tax mop-up grows despite slowdown and duty cuts

In an indication that the industrial activity may pick up in the coming months, indirect tax collections in July 2011-12 showed an increase of about 16.4 per cent to Rs 31,493 crore, against Rs 27,060 crore in the year ago month. The rise, despite the duty cut on petroleum products, is mainly on account of a sharp increase in service tax collections during the month.    

The drop in direct tax receipts on account of higher refunds in April-June 2011-12 has also been arrested, with net direct tax collections in July increasing 26 per cent. The collections stood at Rs 21,400 crore in July this financial year, against Rs 16,972 crore in the corresponding month of 2010-11.

The number of tax refunds came down to Rs 7,000 crore in July compared to earlier months, taking the total refunds in April-July this year to Rs 53,000 crore—a little less than Rs 57,000 crore of refunds issued in entire 2010-11. Due to a higher refund outgo in the four-month period in 2011-12, net direct tax collections for April-July stood at Rs 79,000 crore—about 8 per cent lower than the corresponding period of 2010-11.

Direct tax collections so far are only about 15 per cent of the Budget Estimate of Rs 5,32,651 crore for the current financial year. The collections are usually higher in the second half of the year. Indirect collections in April-July, on the other hand, are 32 per cent of the Budget Estimate of Rs 3,92,908 crore. Indirect tax mop-up in the first four months has increased 27.1 per cent to Rs 1,25,916 crore.

The rise in indirect collections in July was driven by 54.7 per cent rise in service tax collections to Rs 7,783 crore. Customs duty collections rose by 11 per cent to Rs 11,483 crore, whereas excise duty collections showed a small increase of 4.7 per cent to Rs 12,227 crore. The finance ministry suffered a loss of Rs 1,600 crore in July due to removal of excise duty on diesel. It had to forego over Rs 1,400 crore on account of reduction in the basic customs duty rate on petroleum products.

Central Board of Excise & Customs Chairman S Dutt Majumder, when contacted, said: “This is good showing despite the duty cuts. It shows manufacturing is not doing that bad. In service tax we cannot expect the same kind of growth in the coming months but it may still grow at 30-35 per cent.” He said the huge jump in service tax collections was due to the introduction of Point of Taxation Rules where the assessee has to pay service tax on accrual basis to the government in advance.

The growth in excise and customs without the duty cut would have been about 18 per cent and 25 per cent for excise and customs, respectively. In June, the government removed the 5 per cent customs duty on petroleum crude, brought down the import duty on petrol and diesel from 7.5 per cent to 2.5 per cent, and on other petroleum products to 5 per cent from 10 per cent. It also abolished the Rs 2.6 per litre basic excise duty levied on diesel, sacrificing Rs 49,000 crore a year.

TAX COLLECTIONS
Net Indirect  Tax Collections (in Rs  cr)	Apr-Jul  '10-11	Apr-Jul  '11-12	Chg  (%)	Jul  '10-11	Jul  '11-12	Chg  (%)	Budget Estimates
Customs	38,840	50,705	30.5	10,350	11,483	11	1,51,700
Excise Duties	40,283	47,757	18.6	11,680	12,227	4.7	1,59,208
Service Tax	19,934	27,454	37.7	5,030	7,783	54.7	82,000
Total	99,057	1,25,916	27.1	27,060	31,493	16.4	3,92,908
Net Direct Tax Collections	85,647	79,000	(-)8	16,972	21,400	26	5,32,651
Rs in Crores