Refunds pull down net direct tax mop-up in April

The government’s net direct tax collections in April have fallen sharply by over 70 per cent to about Rs 4,000 crore, compared with over Rs 14,000 crore in the same month last year. The collections came down on account of the refund drive started by the Income Tax Department.

Gross direct tax collections in April were about Rs 29,000 crore, about 15 per cent higher from the same month last year, but a refund outgo of about Rs 25,000 crore led to a decline in the net mop-up this year. Finance ministry officials, however, said higher refund in April would not affect the government’s direct tax collection target of Rs 5,32,651 crore this financial year.

“The refunds have been more in April, but this is going to help us during the rest of the year. We will meet the target,” said one official.

The revenue department has managed to marginally exceed its direct tax collection target of Rs 4,46,000 crore for 2010-11. The collections so far have touched Rs 4,46,070 crore, comprising Rs 2,99,486 crore from corporation tax, Rs 1,45,897 crore from personal income tax, and Rs 687 crore from wealth tax. The department is expecting another Rs 1,000-2,000 crore by the end of this month.

Indirect tax collections have also exceeded the target of Rs 3,34,500 crore at the end of March. The collections for the financial year 2010-11 stood at Rs 3,44,268 crore. This comprised Rs 1,36,006 crore from customs duty, Rs 70,835 crore from service tax, and Rs 1,37,427 crore from excise duty.

Officials also ruled out that a lower gross domestic product (GDP) growth this year could affect tax collection target — both direct and indirect. The Budget estimate for total tax collections in this financial year is Rs 9,32,440 crore, which includes Rs 3,99,789 crore as the target for indirect tax collections.

The Reserve Bank of India has lowered its GDP growth projection to eight per cent from the projected nine per cent. Finance Minister Pranab Mukherjee also said growth could be lower as the central bank had increased policy rates to combat inflation which continued to remain high.

The Planning Commission had recently suggested the government to raise the net tax-GDP ratio from 7.4 per cent in 2011-12 to 9.1 per cent by 2016-17. The tax-GDP ratio reflects the portion of taxes the government collects as a percentage of GDP in a year. High ratio target means the government will have to raise tax rates and widen base to garner more revenue.