For the first time in the current financial year, service tax collection has dipped by 3.6 per cent in December 2008 as the economic slowdown spreads from manufacturing to services, which account for over 55 per cent of the country’s national income.

The other two components of indirect tax collections — excise and customs duties — were already in negative territory since October 2008. In particular, excise — a levy on factory production levied at the gates — has started declining from September.

Direct tax collections are also growing at a much slower pace. For the period between April 1 last year and January 29 this year, they grew at about 12 per cent, against the required rate of 16 per cent needed to achieve budget estimates.

As a result, the centre’s fiscal deficit — the difference between total revenue and expenditure — touched 4.1 per cent of gross domestic product (GDP) at the end of December. A majority of this gap is financed via market borrowings.

Service tax collections dipped 3.6 per cent to Rs 4,254 crore in December from Rs 4,414 crore. In April-December 2008, service tax collections grew 25.45 per cent to Rs 39,416 crore. The service tax collection growth rate is slightly lower than the requirement to achieve the annual target of Rs 64,460 crore in 2008-09.

Excise collection dipped 15.5 per cent to Rs 9,017 crore in December 2008 from Rs 10,671 crore in the same month of 2007. Excise collections need to grow by 9.3 per cent to achieve the target of Rs 1,36,610 crore for 2008-09.
  

In April-December of 2008, excise collections grew 2.1 per cent to Rs 77,108 crore from Rs 75,485 crore in the same period of the previous financial year. With industrial output yet to pick up significantly, there are concerns that the declining trend seen since September may continue.

The economic slowdown has affected revenue from imports too. Customs duty collections declined 9.5 per cent to Rs 7,399 crore in December last year from Rs 8,175 crore in December 2007. This is the third consecutive month customs duty collections have shown a decline. The figure rose 11.1 per cent to Rs 82,741 crore in April-December 2008. The growth rate is lower than the 14.4 per cent required to achieve the target of Rs 1,18,930 crore for 2008-09.

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