The Centre’s indirect tax collection rose by more than 12 per cent to Rs 10.71 trillion in 2020-21 (FY21) compared to Rs 9.54 trillion in the previous year, even as goods and services tax (GST) mop-up declined by 8 per cent. Experts attributed it to the hikes in customs duties as well as petrol and diesel taxes, coupled with some recovery in consumption during the second half.

The collection was also 8.2 per cent higher than the revised estimate of Rs 9.89 trillion, showed the preliminary figures released by the finance ministry. The numbers are subject to change, pending reconciliation.

This helped the overall tax collection reach Rs 20.16 trillion in FY21, slightly higher than the Rs 20.05-trillion mop-up in the previous financial year. This was achieved despite a 10 per cent decline in direct tax collection.

Indirect tax comprises goods and services tax, excise duty, and customs. Customs duty collection stood at Rs 1.32 trillion during FY21, representing around 21 per cent growth year-on-year. The collection from central excise duty and service tax (arrears) was up more than 58 per cent at Rs 3.91 trillion during 2020-21, as against Rs 2.45 trillion in FY20.

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“The healthy expansion in indirect taxes during the pandemic benefited from the higher incidence of taxes and cesses on petroleum products as well as the recovery in consumption in the second half of the year,” said Aditi Nayar, principal economist at ICRA.

The finance ministry did not give a further break-up, but all the taxes on petroleum products yielded Rs 2.63 trillion to the Centre in the first nine months of 2020-21, which was around 92 per cent of Rs 2.87 trillion that it got in the entire FY20, according to the figures given on the Petroleum Planning and Analysis Cell website.

Also, merchandise imports to India declined 18 per cent to $388.92 billion during 2020-21, but even then customs duty collection rose 21 per cent. This was due to the hike in customs duty on items such as CCTV cameras, optical fibres, automobiles and their parts.

However, the Centre’s mop-up from GST (Central GST, Integrated GST, and compensation cess) was lower by 8 per cent at Rs 5.48 trillion during FY21 compared to Rs 5.99 trillion in the previous year.

“There has been a rise in customs duty collection, contributing to an increase in indirect tax collection for the year," said Saket Patawari, executive director, indirect tax at Nexdigm.

Indirect tax collection signifies that the economy is gradually bounding back to the growth trajectory, said Abhishek Rastogi, partner at Khaitan & Co.

However, GST collection was 6 per cent higher than the revised estimates for FY21.

GST collection was severely affected in the first half of the financial year on account of Covid-19-induced lockdowns.

However, in the second half, the collection registered good growth and exceeded Rs 1 trillion in each of the last six months. March saw an all-time high of GST collection at Rs 1.24 trillion.

The finance ministry statement attributed this to several measures taken by the Centre in improving compliance in GST.

Higher tax collection than pegged in the revised estimates also helped the government offset low proceeds from disinvestment. However, it may not be enough to meaningfully dent the Centre's fiscal deficit of 9.5 per cent of GDP pegged in the revised estimates for 2020-21.