May sees modest pick-up in indirect tax collections

Refunds, uncertain state of economy keep April-May collections only 4.4% higher, well below year's target

May saw a modest 5.2 per cent growth, year on year, in indirect tax collections to Rs 38,461 crore, with the slowing in economic growth still on and large refunds to taxpayers.

This was a slight improvement from the 3.5 per cent growth in April (the first month of the 2014-15 financial year) but, officials said, signs of a revival are yet to be seen. The combined rise in these first two months of FY15 over a year before was 4.4 per cent, to Rs 72,607 crore.

The data shows of the total gross collections from excise and service tax in May, almost half went in refunds. The latter, in an old and unwritten rule, were held back in February-March to meet the 2013-14 Budget collection target.

“Most taxpayers took refunds or Cenvat credit (set off against taxes paid on inputs while manufacture of final product). The first two months are always like that. A clear picture (on whether there is a recovery) will emerge in the coming months,” said a tax official who did not wish to be identified, as the data had yet to be officially issued.

After deducting the refunds, excise collection in May were Rs 13,951 crore, growth of over 11 per cent. Service tax was Rs 10,971 crore, up 22 per cent. Customs duty collection was Rs 13,539 crore, a decline of 9.7 per cent.

The official said the duty cuts on consumer durables, automobiles and machinery announced in the interim Budget failed to boost domestic manufacturing and led to loss of tax revenue. Customs duty collections continue to suffer due to a decline in gold imports.

“The tax sops were announced on the premise that lower duty would generate demand and help manufacturers clear their huge inventories. An increase in manufacturing would have made up for the revenue loss on account of duty reductions, but that did not happen,” he explained.

Factory output measured by the Index of Industrial Production (IIP) grew 3.4 per cent in April after contracting for two months, raising hope of recovery. It is likely to have further improved in May.

“If IIP shows improvement, tax collections should also go up because duty rates were not reduced, except for a few items. In excise, there might be a lag effect because the payment happens only when the product moves out of the factory. As the rupee gained in April-May, Customs duty collections might have got affected,” said Prashant Deshpande, partner, Deloitte, adding June collections could be higher.

Imports declined 11.4 per cent at $39.2 billion in May against $44.3 bn a year before, affecting Customs duty collections. The region-wise data available till June 7 in the current financial year had Bhubaneswar, Chandigarh, Kochi and Meerut recording an excise duty rise of 25 per cent. Hyderabad and Visakhapatnam saw a double-digit decline in their year-on-year collection.

Mumbai, largest contributor to excise duty, showed a growth of about six per cent; another major region, Vadodara, saw an eight per cent jump. In service tax, however, collections dipped in Mumbai; Vadodara's grew 33 per cent.

Chennai, Lucknow and Nagpur showed the highest growth in service tax collections, a little over 40 per cent. The Large Taxpayers Unit in Bangalore, Chennai, Delhi and Mumbai recorded a steep drop.

Indirect tax collections are projected to grow 18.8 per cent this year to Rs 617,377 crore, on the back of an estimated 30.7 per cent growth in service tax, followed by 15 per cent and 11.7 per cent in customs and excise, respectively, over last year’s revised estimate. A similar growth was projected last year, too; the actual growth was barely eight per cent.