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Indirect tax takes a hit
July, 18th 2009

The excise duty and service tax rate cuts announced as part of the stimulus packages last fiscal have predictably dented the Centres indirect tax revenues in the first quarter this fiscal.

The Centres Customs duty revenues in April-June 2009 stood at Rs 17,858 crore (provisional), which is a 37-per cent decline over Rs 28,459 crore collected in the same period last fiscal. The decline in value of imports for the quarter under review could have also led to lower Customs duty collections. On the excise duty front, provisional data available with the Revenue Department put the collections for April-June 2009 at Rs 17,291 crore, a 31-per cent decline over Rs 24,978 crore collected in the first quarter last year.

The impact of the service tax rate cut in February has been somewhat subdued. Provisional data show service tax collections for the first quarter at Rs 9,543 crore (Rs 9,815 crore)

Proposal shot down

In the run-up to the full-fledged Budget for 2009-10, there was a big debate among policy makers if the excise duty and service tax rates should be rolled back to the pre-stimulus level.

While the top brass of the Revenue Department was in favour, the proposal was not taken to its logical conclusion as the Finance Minister decided that economic growth should be given a boost even if it meant higher fiscal deficit and lower revenue receipts. The Finance Ministry is betting on economic recovery in the next three-four months.

The Finance Secretary, Mr Ashok Chawla, has already indicated that the Government may review the tax rates only at the time of the next Budget in February 2010. He has virtually ruled out a mid-course correction this fiscal in terms of the tax rates.

After the third round of stimulus package in February 2009, the median Cenvat rate, that brings the bulk of excise revenues, was down to 8 per cent. It was 14 per cent in the first quarter last fiscal. According to the latest data , the Centres Customs duty revenues during 2008-09 stood at Rs 99,817 crore (provisional), lower than the collection of Rs 1,04,119 crore in the previous year.

Excise duty collections too saw a decline in 2008-09 at Rs 1,09,346 crore (provisional), lower than the collections of Rs 1,23,425 crore. Service tax collections in 2008-09 stood at Rs 60,716 crore (Rs 51,301 crore).

 

 
 
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