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Tax kitty shines as economy revives
July, 16th 2009

If the surge in tax collection can be considered an indicator of economic revival, then its quite evident that the Indian economy has passed the worst phase and is on a recovery path.

After the advance corporate tax collection, which showed a growth of around 6% in Q1 (April-June) over the same period last yearthere are indications that the collection of indirect taxes is also improving. According to a rough estimate, a senior finance ministry official said that the collection of customs duty has gone up in April-June by over 6% to around Rs 18,000 crore from Rs 16,766 crore in January-March, 2009.

The collection is higher due to an increase in the import of raw material and capital goods thereby showing a spurt in economic activity. This, in turn, would also lead to an increase in the collection of excise duty. However, the tax department has not been able to collate all data on excise duty collection so far.

With the manufacturing sector showing signs of revival in the last two months, the collection of excise duty is expected to go up in April-June. The manufacturing sector has witnessed an expansion of 1.5% in April-May.

As excise duty was reduced to stimulate the economy, it is unlikely that the collection of indirect taxes in Q1 would be more than that in the same period last year. However, it will be better than January-March 2009.

In his Budget speech, FM Pranab Mukherjee had estimated to collect Rs 1.06 lakh crore under excise duty in 2009-10 as against Rs 1.08 lakh crore in 2008-09. Similarly, the customs duty collection was estimated 9% lower at Rs 98,000 crore as against Rs 1.08 lakh crore in 2008-09.

The lower estimate in the collection of taxes has been made despite the economy growing at around 7%. This is mainly because of the lowering of the excise duty by 6% to 8% from 14% in December 2008 as part of a stimulus package to arrest slowdown. The customs duty has also been cut several times. According to one estimate, a cut in tax rates has cost the exchequer Rs 52,000 crore.

In April-May of the current financial year, revenue from tax collection was seen at Rs 26,152 croredown by 6.3% compared to same period last year. However, as the collection of direct taxes will pick up, the overall tax collection figure is likely to improve.

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