Rising tax kitty to help Centre meet fiscal deficit target

The Fiscal deficit in the first two months at 43 per cent of the financial year 2016-17 Budget Estimates (BE), gives the impression that the Centre will find it tough to meet the targeted 3.5 per cent of gross domestic product (GDP).

However, recent collection figures indicate this year’s tax kitty could be substantially higher.

Higher tax collection could also help the government reduce the burden of the Pay Commission, to be met from August.

The government’s tax kitty was up 28 per cent (year-on-year) in the first quarter (April-June), against the target of 12 per cent growth in gross tax collection for 2016-17. In absolute terms, these swelled to Rs 3.24 lakh crore in the quarter, against Rs 2.52 lakh crore in the year-ago period. As much as 42 per cent of it, excluding cess and surcharges, would go to states. This was factored in the Budget when the fiscal deficit target for FY17 was set.

Much of the rise has been because of additional revenue generation measures such as an excise duty on petroleum.

According to the finance ministry, indirect tax collections jumped 30.8 per cent to Rs 1.98 lakh crore against Rs 1.53 lakh crore earlier, while direct taxes yielded Rs 1.24 lakh crore up, a growth of 24.8 per cent.

Rising tax kitty to help Centre meet fiscal deficit target However, if additional resource measures are taken out, the indirect tax kitty would rise by only 10.2 per cent.

The impact of additional measures could be gauged from the fact that excise duty collections were up 50 per cent at Rs 91,225 crore. If additional measures are not taken into account, the rise would be 13.9 per cent.

Similarly, services tax fetched Rs 53,757 crore, 23.3 per cent up but if these measures were not considered, the growth would stand at 4.3 per cent. Customs duty yielded 15.5 per cent higher revenues at Rs 58,808 crore. Net of additional measures, this growth came to 11.2 per cent.

“As of now, it looks that indirect tax collections would be robust,” said Devendra Pant, chief economist, India Ratings. He added if oil prices go beyond $60 to $70-80 a barrel, there could be a problem because the government would, then, have to withdraw additional excise duties for fear of inflation.

The international crude oil price of the Indian basket rose to $45.17 a barrel on Thursday from $45.15 the previous day.

In the first three months, the government collected one-fourth of the budgeted indirect tax collection for 2016-17.

Personal income tax led to 48.8 per cent higher kitty in the quarter. The main reason for the increase in direct tax was the change in the requirements for advance tax payment even in respect of individuals, made in the previous year’s Budget.

Earlier, there were only three installments of advance tax to be paid by individuals in September, December and March. From the current year, individuals are supposed to pay four installments of advance tax at 15 per cent, 30 per cent, 30 per cent and 25 per cent in June, September, December and March of every financial year.

According to an official statement, this increase is mainly due to large refunds made in the previous year compared to the current year. This could be gauged from the fact that personal income tax collections before refunds rose 29.8 per cent in the period under review.

On the other hand, corporation tax yielded only 4.4 per cent higher revenues in the quarter. This might be the result of a subdued India Inc, as well as on account of high refunds. Excluding refunds, corporation tax collection rose 13.5 per cent.

The Index of Industrial Production contracted 0.8 per cent in April, dragged down by the manufacturing sector, which fell 3.1 per cent over the same month in 2015.

According to CRISIL Research, India Inc’s revenue growth will rise to a two-year high of eight per cent (year-on-year) in the June quarter.

Pant says the corporate sector is still subdued and has to do a lot of catching up. However, its performance is marginally trending upwards in recent quarters, he adds.

Tax collection up to June showed 14.6 per cent of the Budget target of direct taxes has been achieved in the first three months of FY17.

The Centre’s fiscal deficit for the first two months of the current financial year was 42.9 per cent of the BE for 2016-17, despite slowing of capital expenditure.

In the corresponding period of 2015-16, it was 37.5 per cent of BE for that year. In April 2016, it was 25.7 per cent of this financial year’s budgeted amount, compared to 23 per cent in the same month of 2015.

Rising tax kitty to help Centre meet fiscal deficit target

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s