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Indirect tax mop-up rate slows after note ban, Jaitley dismisses slowdown
January, 10th 2017

Demonetisation slightly hit tax mop-up in December, with indirect tax collections growing 14.2%, down from 23.1% in November and 30.5% in October, showed data released by the finance ministry on Monday. October figures may be higher due to festival season as well.

Only personal income tax collections bucked the trend partly due to change in the time schedule of payment of advance tax and partly due to better compliance after demonetisation.

However, the government is on track to exceed Budget Estimates (BE) , due to higher growth in pre-demonetisation months.

Dismissing economic slowdown, Finance Minister Arun Jaitley said, “Those reports and figures (saying tax collection would go down) were all panic numbers; the numbers I’m giving you are real.”

All those stories and reports are anecdotal, he added.

“The growth figure does not depend on anecdotal basis...Statistics and taxation figures are real. This is the money which has come in,” Jaitley said.

According to the ministry data, cumulative indirect tax, comprising Customs, excise duty and service tax, grew 25% during the April-December period of the current financial year. It was 26.2% in the period up to November and 26.7% up to October.

Within indirect taxes, excise duty mop-up rose 31.6% in December, against 31.8% in November, quite lower than 40.90% in October. The festival season also propped up excise duty collections in October.

Excise duty is linked to manufacturing. The Index of Industrial Production (IIP) data has not been released for the months after demonetisation, announced on November 8. IIP data for November is scheduled to come later this week.

However, the Nikkei Purchasing Managers’ Index (PMI) gives a rough gauge. According to PMI data, manufacturing growth decelerated in November from October, and turned negative in December. PMI stood at 49.6 points in December, against 52.3 points in November and 54.4 in October.

Service tax grew 12.4% in December, against 13.3% in November and 68.7% in October, which was a festival season. Services PMI was below 50 points in both November and December, indicating a fall in activities.

Customs duty contracted 6.3% in December, against growth of 16.1% in November and flat collections in October.
Tax receipts, Chart The fall in Customs collections appears to be due to a decline in gold import by 46% (in volume) in December 2016, as compared to a year ago, stated the ministry.

ICRA principal economist Aditi Nayar said, “While this slowdown in growth of indirect taxes in December is partly on account of a waning of the favourable base effect, related to the earlier hike of excise duty on fuels and low gold imports, it may also reflect the impact of note ban on factory production and consumption in certain sectors.”

Growth in direct tax collection slowed to 12.01% in April-December, compared to 15.2% growth posted in April-November. The collection stood at Rs 5.53 lakh crore in April-December 2016.

After adjusting for refunds, corporation tax collection grew 4.4% up to December, against 8.75% up to November.

However, personal income tax rose by 24.6% in the first nine months of the current financial year, against 23.89% in the first eight months.

“Growth of corporation tax net of refunds up to December remains low. Cumulative growth of personal income tax net of refunds has improved over the last two months, which suggests better compliance after demonetisation,” Nayar said.

Advance tax collection stood at Rs 2.82 lakh crore in the first nine months, 14.4% higher than in the corresponding period of the previous financial year. Corporate advance tax collection grew 10.6%, while personal income tax rose 38.2%.

The robust growth in advance tax of personal income tax can be explained by the change in tax payment schedule this fiscal. A total of 75% of advance tax needs to be paid by an individual by December 15 now, as against the requirement of 60% till the previous year.

However, the government is on way to meet the Budget Estimates (BE). Direct tax collections till December constituted 65.3% of the BE for 2016-17. Indirect tax mop-up accounted for about 81% of BE.

Jaitley said VAT collections in most states have shown an increase and they also received taxes in the old currency in November. "In my opinion, all well administered states have seen rise in VAT collection even in November."

Asked about divergence in the GDP number and tax collection figures, Jaitley said: "We will only comment on final figures (of GDP). Today we only have advance estimates presumption. Tax collection data are real it is not a presumption."

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