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Indirect taxes see 22% fall
November, 13th 2009

The green shoots visible in the economy failed to enhance government revenue with indirect tax collections comprising customs, excise and service tax falling almost 22 per cent to Rs 1,26,903 crore in the April-October period this year. It stood at Rs 1,61,954 crore in the corresponding seven months of 2008-09. The overall decline was led by a 32 per cent fall in customs revenue.

With the government talking of exiting stimulus measures only in the next financial year, the situation is unlikely to improve unless there is a significant increase in domestic manufacturing, said an official.

D K Joshi, principal economist, Crisil, said the decline was mainly on account of the slowdown and a cut in tax rates but added that revenue collections would improve in the coming months, with the economy showing signs of recovery.

The tax authorities have been able to collect a little more than 47 per cent of the annual target of Rs 268,000 crore at the end of seven months although the government had accounted for lacklustre collections in the budget estimates, targeting only a Rs 3,000 crore increase this year over last year's Rs 265,000 crore.

Customs collection fell in line with a 23 per cent decline in the import of all commodities during April-August period in rupee terms. The decline was also partly on account of the strengthening rupee.

The 19 per cent fall in excise duty collections does not, however, appear to be commensurate with industrial growth so far, stoked by a 4 per cent cut in Cenvat duty in January 2009. Industry grew 5.8 per cent in April-August 2009 against 4.3 per cent in the same period last year.

Service tax collection fell 5.4 per cent to Rs 28,926 crore during April-October, compared with Rs 30,591 crore in the same period a year ago. This was the only segment in indirect tax collections that showed a marginal increase over the budgetary estimates for 2008-09. "The fall in service tax is disturbing, since it had been a growing segment, added Joshi. Part of the fall is due to a 2 per cent cut in the rate in February 2009.

For October this year, total indirect tax collections dropped to Rs 22,193 crore from Rs 25,495 crore in the same month last year. Customs duty collections fell to Rs 7,505 crore from Rs 9,265 crore last October. Excise duty collections fell to Rs 8,952 crore from Rs 9,740 crore, while service tax receipts dropped from Rs 6,490 crore to Rs 5,736 crore.

Customs and excise duties, which grew 8.9 per cent and 1.2 per cent, respectively, in August 2008 a month before the collapse of Lehman Brothers and the beginning of the global financial meltdown fell 0.8 per cent and 15 per cent, respectively, in November last year. Service tax collections, however, were buoyant till October, growing 15.9 per cent during the month and a rise of 29.6 per cent up to October in 2008-09.

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