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Tax mopup falls short again; to widen fiscal gap
April, 13th 2009

The economic slowdown has taken its toll on the governments tax collections, which have fallen short of even the revised lower target of Rs 6,27,949 crore for 2008-09 fiscal. This would push up the fiscal deficit further, which has been revised up to 6% in 2008-09 from 2.5% of GDP estimated earlier.

The governments gross tax collection is likely to be about Rs 25,000 crore less than the revised target, with both direct and indirect tax collections bearing the brunt of slowing economic activity, a government official who did not wish to be named said.

In the case of indirect taxes, the slowdown in manufacturing has partly contributed to the lower tax collections. According to the latest industrial production numbers, manufacturing contracted 1.4% in February 2009.

The two percentage point reduction in excise duty and service tax rates announced by the then acting finance minister Pranab Mukherjee in his reply to the debate on interim budget has further dented the collections.

However, buoyancy in direct taxes mostly corporate tax and tax on personal income in the early months of the previous financial year provided some succour.

The slippage on the direct tax side is less than Rs 10,000 crore. The direct tax collection was revised downwards to Rs 3,45,000 crore in the interim budget from the original budget estimate of Rs 3,65,000 crore. In the case of indirect taxes, all the three major taxes excise duty, Customs and service tax have been hit.

A shortfall of about Rs 25,000 crore coupled with additional spending would widen the countrys fiscal deficit, which is excess of the government expenditure over total non-debt receipts, pegged at 6% in previous fiscal further by at least 1-1.5 percentage points.

The additional spending is largely on account of the stimulus measures as also food and fertiliser subsidies. In the interim budget, the governments plan expenditure was revised to Rs 2,82,957 crore as compared to budget 2008-09 estimate of Rs 2,43,386 crore.

The non-planned expenditure of the government is pegged at Rs 6,17,996 crore as against Rs 5,07,498 crore estimated in the budget 2008-09.

It may be recalled that the government had initially projected the fiscal deficit at 2.5%, lower than the Fiscal Responsibility and Budget Management Act mandated target of 3%.

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