The government is likely to revise downwards indirect tax collections target for the current financial year by at least Rs 20,000 crore, because of cut in industrial production due to the global economic slowdown and duty sops.
Also, direct tax collections, which constitute 53 per cent of total tax revenue for the government, has registered a growth rate of only 11 per cent in the current fiscal so far, as against a required rate of 16 per cent to achieve the budget estimate.
These two factors are expected to add to the Centres fiscal deficit, which already is expected to cross 5 per cent of the gross domestic product (GDP).
Though officials are hopeful of achieving the direct tax budget target of Rs 3,65,000 crore, the internal target of Rs 3,95,000 crore, which is endorsed by the finance ministry and was a buffer for rising government expenditures, will be a far cry.
On the indirect tax (excise, Customs and service tax) front, the government has sacrificed over Rs 40,000 crore since April this year by resorting to duty cuts, first to fight inflation and then to boost demand in the economy.
The government sources told Business Standard that the revenue department has started the process to trim the indirect tax target to below Rs 3,00,000 crore for 2008-09 from Rs 3,20,000 crore.
Experts said they will not be surprised if the indirect tax collections for this fiscal are same as last fiscal around Rs 2,80,700 crore.
Indias industrial production dipped for the first time in 15 years to -0.4 per cent in October this year, as global economic crisis is adversely impacting domestic demand and exports. Economists dont expect it to recover at least till middle of next year.
Excise and Customs duty collections, which contribute over 80 per cent to the indirect tax revenue, have grown by 5.3 per cent in April-November this fiscal as against the requirement of 11.2 per cent growth to achieve their budget target. Service tax collection growth has also started slowing down.
On the direct tax side, the overall tax collection growth has slipped to around 11 per cent so far in the current fiscal as against over 40 per cent in the same period last fiscal. This is much lower than 16 per cent growth required to achieve the Budget target of Rs 3,65,000 crore and below 26 per cent to achieve the internal target of Rs 3,95,000 crore for 2008-09. The later is ruled out now.
Income Tax officials bank on the trend of tax collections in the fourth quarter, which normally fetches one-third of total direct taxes, to meet the annual target of Rs 3,65,000 crore. Total direct tax collections are around Rs 2,31,000 crore from April 1 to December 24 this fiscal.
Officials expect around Rs 1,40,000 crore (Rs 1,10,000 crore normal tax payments and around Rs 30,000 crore from demand raised after scrutiny) in the quarter ending March 2009. However, this is subject to economy not slipping further due to slowdown, officials said.
The advance income tax collections, which contributes nearly 45 per cent to the total direct tax collection, have declined by about 20 per cent in December instalment due to lower profit expectations by companies.