Indian Indirect tax collection rise on One time Adjustment

Four months into the new fiscal, the indirect tax collections are holding up well, suggesting that the slowdown is yet to impact tax collections materially. Indirect tax collections in July were up 16.4% from a year ago. In the April-July period the kitty was up 27% from a year ago. 

"Overall central excise and Customs collections show economic activity is good," Central Board of Indirect Taxes Chairman S Dutt Majumdar said. "We are confident of meeting the indirect tax target," he said. 

It was feared that the sharp drop in industrial growth in the current fiscal will considerably dent indirect tax revenues, pegged at about Rs 4 lakh crore, a rise of 17.3% over the revised estimates of 2010-11. Industrial output grew only 5.7% in April-May 2011-12 from a year ago and within that manufacturing, most relevant from excise collection perspective, expanded only 6%. 

The numbers are particularly encouraging considering that the government had removed the import duty on crude and lowered that on petroleum products to cushion the consumers from the impact of the high international crude prices. It had also lowered excise on diesel. The loss on account of reduction in excise on diesel alone was Rs 1,600 crore in July, Majumdar said. 

The duty reduction, the government said, would cost over Rs 49,000 crore in full fiscal. The impact this year will be less at about Rs 35,000 crore. Customs collections have remained robust despite the abolition of import duty on crude as imports have remained robust, rising over 36% in the first quarter of the current fiscal. 
"Economic activity remains strong but is slowing down, though there is conflicting data coming out, making it difficult to connect the dots," said Crisil chief economist DK Joshi. Both the indirect taxes and the direct taxes arm of the finance ministry have been on the overdrive to boost collection. 

The smart rise in the service tax collections is due to one such measure, though it will be only a one-time kicker and not a step up in total tax collections. At the beginning of the current financial year the department had changed the 'point of taxation' rules for services to align it with that applied to goods. 
Under the changed rules, service tax will be levied on an accrual basis and not on when it is paid. This will mean that in many cases the tax would come to the government earlier than it would in the cash system, providing a one time step up service tax revenues. 

Any review of indirect tax collections is now expected only in December when the budget preparations for the next fiscal begin in earnest.

It will be interesting to note that government had preponed its bond issuance to August from September. and Finance ministry and Specifically, Mr Basu, in his Funny Ways, keeps assurance of Budget Deficit intact. Its important to note that all this ' Wizards' were assuring about Inflation, from end of 2010 to May2011.Then, turned there coats, about it. With regular sermons about, Inflation should come down and finally, all in a Dock