Excise turns negative

A 40 per cent cut in the general rate of central excise duty, prompted largely by signals of an economic slowdown, has pulled the net excise collections for April 2009 into negative territory. They stood at minus Rs 78 crore compared to Rs 549 crore in April 2008, according to data compiled by the Controller General of Accounts.

Excise duty collections can turn negative when refunds for the month are higher than gross tax collections. Refunds take place when disputes over taxes are settled and duties on exported goods are reimbursed to exporters.

However, the April 2009 excise collection figures have more to do with the sharp reduction in duty rates. In December 2008, the government reduced the rate of central excise for all products, except petroleum goods, from 14 to 10 per cent. In the face of the ongoing slowdown, Finance Minister Pranab Mukherjee in February again brought down the general rate of central excise to 8 per cent and the service tax rate from 12 to 10 per cent.

“It is not surprising that excise duty collection is in the negative. Industrial production is down and also indirect tax cuts are reduced sharply during the last fiscal (2008-09),” said Govinda Rao, director of National Institute of Public Finance and Policy (NIPFP), a Delhi-based economic research institution.

The total revenue loss on account of the cuts in indirect tax rates on goods and services was estimated at Rs 75,000 crore in a full year.

The customs duty collections have also dipped by more than half in the first month of the current financial year to Rs 4,206 crore from Rs 8,876 crore in the same month last year.

Falling crude oil and petroleum product prices are cited as another reason for the sharp decline in indirect tax collections.

Personal income tax collections grew by 20 per cent at Rs 9,489 crore in the month of April this year from Rs 7,905 crore in April 2008. In May, however, the growth in income tax collections suffered and the net income tax collections in April-May 2009 grew by only 6 per cent over the same period in 2008. Corporation tax collections for the same period increased by 5.56 per cent.

The fiscal deficit is estimated at Rs 54,158 crore in April 2009 as against the full year estimate of Rs 3,32,835 crore. The deficit was financed largely by ways and means advances to the tune of Rs 39,653 crore, with no market borrowings.