The governments indirect tax collections rose 45% in the first five months of the current fiscal year, lending some credence to the strong industrial growth data for July.
Indirect tax mop for the April-August period rose to Rs1,24,170 crore, aided by the continued buoyancy in customs collections, data released on Tuesday showed. Indirect taxes include customs duty levied on imports, excise duty on goods manufactured in the country and service tax.
The robust collections are an indication of a strong domestic economy with excise collection point to good manufacturing and high customs duty inflows suggesting robust investment activity.
Part of the strong growth in collections is, however, due to an increase in excise duty from 8% to 10% and the imposition of 5% import duty on crude oil.
The government had increased these levies in the budget as part of the phased withdrawal of stimulus measures announced to prop the economy during the global economic downturn.
The service tax rate was, however, left unchanged at 10%, the reason why collections under this head did not grow much.
The strong growth in the indirect tax collection is expected to help government easily achieve the budgeted Rs7,47,000 crore target of tax collections in the current year against Rs6,33,000 crore last year, an increase of 18%.
The net direct tax collections during April-August grew 13.9% to Rs1,00,112 crore.
The manufacturing purchasing managers index for August, although dropped marginally to 57.2 from 57.6 in June, indicated a strong production of goods.
A sharp dip in industrial growth in June to 5.8% (revised downward from 7.1% initial estimates) gave the impression that industrial growth was moderating. But the rebound in July, when the index for industrial production surpassed all predictions to post a 13.8% growth, and the strong growth in excise collection seem to suggest that June was an aberration.
The strong collections will help the government cut fiscal deficit to less than the budgeted 5.5% of GDP.
Though the government got a Rs65,000 crore bonanza from the auction of 3G and broadband spectrum, most of it will be consumed by the
Rs 55,000 crore expenditure proposed in the first supplementary demand. That makes meeting tax collections and disinvestment targets important from a fiscal consolidation perspective.