March 16, 2012

life in financial markets: india's tax revenues hit by slack in corporate tax, excise and customs

The current year is turning out be one of the worst growth years in tax revenues for the government of India. The pace at which revenues received by the government in the form of taxes, direct and indirect, have been growing in the current financial year (FY12), is lower than recent years. This is indicated from an analysis of the trend in collections of two major direct tax heads, corporation tax and income tax, and three major indirect tax heads, central excise duties, customs and service tax.

This has caused only 69 per cent of net tax revenues (after assignment to states) estimated at Rs 6,64,457 crore in budget 2011-12 to be reached in the first 10 months of FY12. It falls much behind the 80 per cent of budget estimate of Budget 2010-11.

The analysis of individual tax heads reveals individuals paying income tax and all those paying service tax on services have helped the government fill up its coffers much more than companies which have been faced with lower profit growth resulting into a sluggish growth in paid corporate taxes. Un-exciting rate of growth in sales, also the reason behind sluggish corporate profits, has resulted in only a small growth in excise duties. Customs collection growth too has been affected a little, partly due to imports getting costlier on account of rising global commodity prices.

Low growth in tax revenues
Current year has seen most tax revenues struggle to grow at the same pace as previous years
             YoY Growth rates (%)
Tax revenuesFY12*          (Rs crore)  FY12**  FY11   FY10   FY09     FY08
Corporation tax2287505.0421.1114.6810.6233.68
Income tax11435021.1812.6624.773.3136.69
Central excise duties1299266.2229.59-2.11-12.004.94
Service tax8256236.9018.79-4.1318.7936.45
* Apr-Jan for corporation tax & income tax & Apr-Feb for excise, customs & service tax
** change from corresponding period of FY11

In the first 10 months of FY12, upto January, corporate tax yielded a gross revenue of Rs 2,28,750 crore, only five per cent more than the collection figure in the corresponding period of FY11. This is the first time in five years the growth rate slipped to single digit. From FY08 to FY11, the annual growth rate in corporate tax was 34 per cent, 11 per cent, 15 per cent and 21 per cent.

Revenue collection from personal income tax, however, has been robust in the current year upto January, growing by 21 per cent to Rs 1,14,350 crore. From FY08 to FY11, the annual growth rates in income tax were 37 per cent, three per cent, 25 per cent and 13 per cent.

Among indirect taxes, for which collection figures upto February 2012 were available, central excise duties raked in Rs 1,29,926 crore, in the April 2011 to February 2012 period, six per cent more than that in the corresponding 11-month period in FY11. While this is sharply down from the 30 per cent annual growth in excise collections in FY11, it is better than the negative growth rates seen in FY10 and FY09 and a smaller positive growth of five per cent in FY08.

Customs collection showed a 12 per cent growth in current FY as against growth rates of 58 per cent in FY11, negative 17 per cent in FY10, negative four per cent in FY09 and 21 per cent in FY08. Service tax growth in the current FY has been the highest in the last five years. Service tax collection was Rs 82,562 crore in the first 11 months of FY12, 37 per cent more than that in corresponding period of FY11.

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