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Finance Secretary: Slowdown may hit corporate tax collection
June, 17th 2011

Finance secretary Sunil Mitra on Thursday expressed concern about slowdown in corporate tax collection. He said the rise in RBI policy rate has further compounded the problem.

"I am worried about the likelihood of a slight slowdown in the corporate tax growth rate. Now again, the RBI came out with announcement on the rate increase. We've to see how it works out," Mitra said.

The advance tax numbers for the top 100 companies went up by around 14%, the growth is nearly half the level recorded in the previous quarter and lower than the 25% rise estimated a year ago. In March, top Indian companies had seen their advance tax payments rise almost 30%.

The moderation in the growth rate of advance tax in the first quarter is also in sync with industrial slowdown seen in recent months, indicating stress on India Inc. The Indian industry is already complaining of higher costs, which is taking a toll on their profitability.

The government seems to be worried that a higher interest rates following the increase in policy rate by RBI would result in slowing down demand for consumer goods.

The RBI on Thursday announced hike in its short-term lending (repo) and borrowings (reverse repo) rate by 25 basis points, taking the repo rate to 7.5% and reverse repo to 6.5%.

"I do have a little worry about slowdown that is being observed in industrial indices and also in the core sector growth," Mitra said. The industrial output declined to 6.3% in April 2011 as compared to 13% a year ago.

On meeting the target of direct tax collections, he said, "The fact is that corporate tax is the larger component of direct taxes, so if there is a slowing down of growth there then I do have a reason for concern. But on income tax front, we are doing pretty much well."

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