Tax collections drop, fiscal worries loom
With growth low, tax collections have dipped as well – and that leaves the government with less to spend on programmes that could boost economic activity, reports HT Correspondent.business Updated: Dec 16, 2008 22:56 IST
Warning signs have begun to show on the country’s macroeconomic indicators with latest official revenue data suggesting the government’s books could have a bigger deficit hole as policy makers grapple with options to maintain growth amid the piling rubble of the global credit crisis.
With growth low, tax collections have dipped as well – and that leaves the government with less to spend on programmes that could boost economic activity. The government has to walk carefully to avoid a vicious circle. Mid-course changes in tax rates are compounding the problem.
The government had budgeted a central fiscal deficit of 2.5 per cent of the gross domestic product (GDP) in 2008-09. The 15 percentage point contraction in excise duty collections in November reported on Tuesday mirrors poor industrial output.
Factory output measured by the index of industrial production (IIP) contracted by 0.4 percentage point in October, driven largely by a reduction in manufacturing growth.
The government had budgeted to raise Rs 6,87,715 crore from tax revenues this year, out of which Rs 1,37,874 crore were to come from excise collections, but the current trend could upset the plans.
There have been at least two major mid-course corrections in indirect tax rates this year.
In June the government had abolished customs duty on crude from 5 per cent, reduced customs duty on diesel and petrol to 2.5 per cent from 7.5 per cent and reduced excise duty on both the transport fuels to Re 1 a litre from the existing Rs 4.60 and Rs 14.35 per litre, respectively.
The government recently announced a four percentage point cut in central value added tax (Cenvat)—a tax imposed by the Centre at various stages of the manufacturing process. The move would result in a revenue loss of Rs.8,700 crore.
Corporate tax, an advance indicator of how corporate earnings may shape up, too dropped in November. From over Rs 7,700 crore in the same month last year, corporate tax collections were down to Rs 4,561 crore in November 2008, a 41 per cent slide.