Indirect tax figures, exports pick-up point to gradual stimulus withdrawal

Indirect tax figures, exports pick-up point to gradual stimulus withdrawal
The Financial Express, December 24, 2009, Page 2

fe Bureaus, New Delhi

Putting greater pressure on its delicately balanced books, the Centre’s indirect tax collection is unlikely to match the Budget estimate of Rs 2,69,477 crore for 2009-10. “Indirect tax collections may fall short by Rs 20,000 crore to Rs 22,000 crore of the Budget estimate,” revenue secretary PV Bhide said on Wednesday.

Indirect tax receipts, comprising customs duty, excise duty and service tax, have shrunk by 21% in the first seven months of the fiscal, totting up just Rs 1.26 lakh crore compared with Rs 1.61 lakh crore in the same period last year. While part of this shortfall is due to the slowdown, some of it is because of the duty cuts announced as part of stimulus.

The issue was also highlighted by finance secretary Ashok Chawla on Tuesday when he said, “It is very unlikely that the estimates on the indirect tax will be met, but on the direct taxes front, we are maintaining that it will be more than met.” As per its Budget estimates (BE), the government aims to earn Rs 6.4 lakh crore from both direct and indirect taxes during the current fiscal.

A lower-than-estimated collection from indirect tax receipts put more pressure on the Centre’s fiscal deficit, which is projected at 6.8% of the GDP in 2009-10. Direct tax receipts and higher expenditure on heads like oil subsidy is already proving to be a threat to the deficit target. Already, the fiscal deficit at 61.1% of the BE by October end is straining government finances.

While the Central Board of Direct Taxes is hopeful of meeting the BE of Rs 3,70,000 crore for 2009-10 of direct taxes, it is worried that the internal target of Rs 4 lakh crore set up by finance minister Pranab Mukherjee may be unachievable. The Centre is also exploring how and when to compensate oil companies for under recoveries without hurting the deficit.

Though it has not made any provision for this in the first supplementary demand for grants, it will have to do so in the second supplementary Budget, expected to be tabled in the Budget session.

Speaking at an Assocham seminar on Wednesday, PV Bhide said the finance ministry is finalising the road map for the goods and services tax (GST). “The draft legislation on GST has been referred to legal experts and would be finalised shortly to enable the government achieve target of implementation of goods and service tax,” he said.

The Centre has also decided to subsume purchase tax in the GST ambit, said Central Board of Excise and Customs special secretary and member S Dutt Mazumdar. “A decision has to be taken on subsuming natural gas into GST. It is still subject to discussions between authorities concerned. Replacing electricity duty, levy of sugar and textile by GST is still not decided,” he said.