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Govt optimistic about tax data, experts not impressed

business Updated: Jan 10, 2017 12:48 IST
Suchetana Ray

Finance Minister Arun Jaitley.(HT Archive)

Finance minister Arun Jaitley released tax collection numbers on Monday, to show that the government’s currency recall didn’t hurt economic activity — a claim several economists and state officials have doubted.

Indirect tax collection is the measure of a country’s economic activity and comprises levies such as central excise, service tax and customs duty.

“Data shows a big increase in central excise collection, but that does not tell you anything about sales. VAT and sales tax numbers in states show the real picture about the spending by common people. It has taken a big hit,” said one of the finance ministers, who did not wish to be quoted.

Central excise duty is levied on the production of goods, while sales tax and VAT collections in states reflect the actual sale of these goods. “There is usually a lag of one or two months before state sales tax or VAT reflect the actual sale of goods produced in the economy,” said another finance minister who requested anonymity.

The central excise collection showed the highest upward spike at 31.6% in December 2016 over the same period last year.

“The tax collection data is real and not estimation,” said Jaitley, rubbishing fears of economic contraction after the currency squeeze.

Top sources in non-BJP ruled states point at tax data to explain that the real picture of demonetisation will be reflected in the sales tax and VAT collections for December 2016 which will be available by the end of this month.

“There are five states that show slump in indirect tax collections in December 2016, data that is reflective of the November economic activity. Once the December numbers come in more states will be in the negative,” said a state government source, who did not wish to be quoted.

Economists also question whether these positive tax figures will be reflected in the revised GDP numbers, to be released at the end of next month.

“These numbers are likely to be revised down when the second estimate is released in end February,” Singaporean multinational banking and financial services corporation, DBS, wrote in a report after GDP estimates were released last week.