Indirect tax collections surge 36.5% in Apr-Aug

Rise shows recovery in economy clearly on, says CEA; outpacing Budget target for growth till now

The Centre's indirect tax collection growth slowed a bit in August compared to July but remained robust on account of a sharp pick-up in excise duty collection on account of additional revenue measures, showed data issued by the ministry of finance on Wednesday. Indirect taxes — excise duty, service tax and customs duty — rose 36.7 per cent in August to Rs 54,396 crore over the same month in 2014. In July, the growth was 39.1 per cent. The additional revenue measures include a rise in excise duty on petroleum products since last October, removal of excise duty sops to the automobile and capital goods sectors earlier this year, and a service tax increase from June.

Indirect tax collections rose 36.5 per cent in the first five months of the financial year, to Rs 2.63 lakh crore. The April-August collections were about 40 per cent of what has been budgeted for the year by the government. “The tax growth for April-August, compared to the same period last year, reflect a number of additional measures. Stripped of these, indirect tax growth for the period was still 12.2 per cent. That shows recovery in the economy is very much underway,” said chief economic advisor Arvind Subramanian.

However, these are unlikely to push growth in gross domestic product (GDP). Despite 35 per cent growth in indirect tax collections and softening of international commodity prices, resulting in slow growth of subsidies, GDP growth slowed to seven per cent in this year's first quarter (April-June), against 7.3 per cent growth in the fourth quarter (January-March) of the previous financial year. In the changed methodology for GDP calculation, price deflators are not used on indirect taxes to arrive at the real GDP. A fixed ratio is used.

This essentially negates all the sharp changes in indirect tax rates by the government. These would be mirrored in the nominal growth of GDP. “When tax collections are growing at over double digits, it suggests the underlying tax base or the nominal GDP seems to be healthy and moving upwards,” said Subramanian.

Customs duty rose 21.1 per cent to Rs 81,138 crore in April-August. Customs collections were aided by the rupee depreciation of six per cent in the period. Excise duty collections rose 70 per cent during the five months, to Rs 1.02 lakh crore. Without the additional revenue measures, the growth was only nine per cent. Service tax collection posted a 21.6 per cent growth in the five months, to Rs 75,006 crore. The government is targeting close to 25 per cent growth in this tax over the year.

The government has targeted close to 19 per cent growth in indirect taxes for 2015-16. Asked if the government would surpass the target, Subramanian said,“So far, it seems like it because the asking rate is 18.8 per cent, including the additional measures, and we are doing 36.5 per cent.”