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Sector-specific strategy soon to boost indirect tax collection
November, 01st 2012

Given the emphasis on fiscal consolidation, the Finance Ministry intends to design sector specific strategy to boost the indirect tax collection.

Meanwhile, higher refunds under duty drawback schemes have affected tax collection during first six months (April-September) of the current fiscal.

The Government has targeted Rs 5.05 lakh crore mop-up through indirect taxes (customs duty, excise duty and service tax) during the current fiscal. This requires a growth rate of 27 per cent.

However, in the first six months, it has managed to collect Rs 2.17 lakh crore, a growth rate of just over 15.5 per cent.

An exercise is underway to analyse sector wise collections of indirect taxes. Accordingly, sector specific moves will be initiated, a senior Finance Ministry official told Business Line.

While excise and customs duty collections are below expectations, service tax has been providing some comfort.

He did admit that it was difficult to pinpoint a particular sector or set of sectors for lower than expected growth of collections, but said there was still some room available for better tax compliance and that efforts will be made in that direction.

IIP data for August showed that sectors such as mining, consumer goods and intermediate goods have done well while capital goods has still to recover.

However, refund under duty drawback is proving to be a headache. The official said, The refunds under duty drawback have gone up to approximately Rs 8,500 crore in the first six months as against Rs 3,500 crore during the corresponding period last year.

The drawback scheme was redesigned last October, with the scrapping of the Duty Entitlement Passbook Scheme (DEPB).

The official explained that after the closure of DEPB on September 30, 2011, nearly 1,100 goods were added to the list of those eligible for duty drawback, which went up to nearly 4,000 goods. This increased total refunds.

It may be recalled that under the drawback scheme, refund has to be made within 20 days, while scrips under DEPB could have been used any time.

Apart from industrial slowdown and higher refunds, last years duty cuts on crude and petroleum products are still impacting the indirect tax collection.

But the Finance Ministry is hopeful that impact of duty cuts might neutralise during the last quarter (January-March, 2013) of the current fiscal and this will have a positive impact on overall indirect tax collection.

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