Excise duty mop-up grows 34% in H1; overall revenue collection down 22%

Overall revenue collection down 22% in Apr-Sept

Robust excise duty collection in the first half of the current financial year has come as a respite for the fiscally stressed Union government. Excise duty mop-up posted 34 per cent growth in April-September compared with the same period last year, and was the only revenue segment seeing an expansion. 

The collection in the first half, of Rs 1.29 trillion, the highest in three years, recorded growth after three years of decline. This can be attributed to the steepest hike by the government in taxes on petrol and diesel in the form of cess and special additional duty in May, which is estimated to add another Rs 1-1.5 trillion to the Centre’s kitty in FY21. 

The mop-up had declined by 5 per cent in the first half of 2019-20, 23 per cent in 2018-19, and 15 per cent in 2017-18.

The overall revenue mop-up has, meanwhile, contracted by 21.6 per cent during this period. In absolute terms, gross revenue stood at Rs 7.2 trillion, which is a three-year low. This includes collection from goods and services tax (GST), income tax, corporation tax, customs, and excise duty.

GST, introduced in 2017, had subsumed excise duty on all items except petroleum products and alcohol. 

“We have assessed the expected gain to the Centre on account of the hikes in excise duty levied on petrol and diesel at Rs 1 trillion above the budgeted level for FY21 (Rs 1.7 trillion), which is not shareable with the state governments,” said Aditi Nayar, principal economist, ICRA Ratings. “Accordingly, we continue to expect the government of India's fiscal deficit to widen to Rs 14 trillion (7.4 per cent of gross domestic product) in FY21 from the budgeted level of Rs 8 trillion, and Rs 9.4 trillion in FY20,” added Nayar.

Excise duty collection in the first half achieved 49 per cent of the budget target of Rs 2.67 trillion for FY21, whereas it had touched 32 per cent of the original budget estimate for FY20. The excise collection target for 2019-20 was revised  down to Rs 2.48 trillion from Rs 3 trillion, which also could not be met and fell short by Rs 9,000 crore.

While the government is facing a sharp revenue shortfall due to muted economic activity, it is expected to retain spending to push demand by way of stimulus packages and the fight against Covid-19.

In May, the Centre had increased the road and infrastructure cess by Rs 8 each for petrol and diesel, and the special additional excise duty (SAED) was hiked by Rs 2 per litre and Rs 5 per litre, respectively. The entire hike will go to the Centre’s coffers and not devolved to the states. The excise duty on petrol stands at Rs 32.98 per litre and that on diesel at Rs 32.83 per litre. 

The government, in March, had introduced an enabling provision to hike excise duty on petrol and diesel by Rs 8 per litre in future in the Finance Act, increasing the threshold level to Rs 18 a litre in the case of petrol and Rs 12 for diesel by way of amendment of the Eighth Schedule of the Act.

Since the duty is levied in absolute terms per litre, the international crude price movement has no bearing on the collection.

Customs collection is down by 44 per cent in April-September on a year-on-year basis, while the central GST mop-up declined by 34 per cent during this period. As for direct taxes, there is a 31 per cent decline, with corporation tax down 40 per cent and income tax 22 per cent lower compared to the corresponding period of last year.

The Centre’s fiscal deficit soared to 115 per cent of the full-year budget estimates in the first half of 2020-21. Madan Sabnavis, chief economist, CARE Ratings, has estimated the fiscal deficit to touch 9 per cent of the GDP in FY21, a sharp slippage from the target of 3.5 per cent set by the Centre.