Direct tax collections are likely to fall short of budget targets in 2016-17 with the government managing to garner only 73% of the estimated collections until February.

The pace of growth in indirect tax collections also slowed in February although the government may manage to meet the target for the full financial year.

The government may have to cut down expenditure in March, the last month of the fiscal year, to compensate for the revenue shortfall.

Data released by the finance ministry show that direct tax collections in April-February amounted to Rs6.17 trillion, an increase of 10.7% from the year-ago period. After adjusting for refunds, corporate tax collections grew only 2.6% while personal income tax collections were up 19.5%.

Although the government had not budgeted for any tax inflows on account of the second income disclosure scheme under the Pradhan Mantri Garib Kalyan Yojana, ending 31 March, only a good response to this scheme may bring the government closer to its direct tax collection targets for the full year.

Indirect tax collections until February amounted to Rs7.72 trillion, an increase of 22% from the year-ago period. This was nearly 91% of the revised indirect tax collection target set out in the budget. While excise collections till February were up 36% to Rs3.45 trillion, service tax grew 21% to Rs2.21 trillion and customs collections were up 5.2% to Rs2.05 trillion.

Indirect tax collections fell sharply in February mainly on account of a drop in excise and service tax collections. While excise collections grew by only 7.4% in February as against 26% in January, the increase in service tax collection was also muted at 7.6% in the month against 9.4% in January.

The fall in excise duty collections can be attributed to the removal of a favourable base effect. The government had increased the excise duty on petroleum products numerous times till January.

“From February 2017 onwards, the favourable impact of the hikes in excise duty on fuels undertaken from November 2015 to January 2016 have dissipated. The pace of growth of excise collections is now expected to reflect a level that is closer to the rise in consumption of fuels, as well as industrial activity in the economy,” wrote Aditi Nayar, principal economist, ICRA Ltd, in a note.

“Double-digit growth of customs duty collections in February 2017 may portend a substantial rise in gold imports,” she said. “The continued moderation in the pace of service tax growth in the recent months suggests that discretionary spending is being curtailed,” she added