life in financial markets: tax revenues foregone

Government's tax incentives valued 12 per cent higher this year

Special tax rates, exemptions, deductions, rebates, deferrals and credits is estimated to cost the central government a total of Rs 5,81,872 crore in the current financial year (FY12), 12.5 per cent more than it did in the previous year (FY11). This is revealed in a FC R analysis of the statement of revenue foregone under the central tax system which was released as a part of the budget documents on Friday. The analysis encompasses the tax incentives given in four major revenue heads, personal income tax, corporate income tax, excise duties and customs duties.

The government's statement of revenue foregone, while putting a value to various tax incentives, states this is done "assuming that the underlying tax base would not be affected by removal of such measures. As the behaviour of economic agents, overall economic activity... could change along with the elimination of the specific tax preference, the revenue implications could be different to that extent." 

As per the current year estimates, revenue foregone due to customs duty concessions, including revenue foregone from export promotion schemes other than drawback, has risen the highest, on a year-on-year basis, at 20 per cent to Rs 2,76,093 crore in FY12 from Rs 2,30,131 crore in FY11. Essentially, the revenue foregone in customs duties represents the difference between duty that would have been payable at tariff rates fixed under the Customs Tariff Act, 1975 but for the exemptions given by the central government (using its powers under Customs Act, 1962) and the actual duty paid after the exemptions.

In customs duties, the two major commodity groups, crude oil and mineral oils, and diamond and gold, accounted for the largest portion of revenue foregone. In June 2011, effective basic customs duty on crude petroleum oil was reduced from 5 per cent to nil, that on petrol and diesel was slashed to 2.5 per cent each from 7.5 per cent each. As a result, the customs duty revenue foregone from crude oil is estimated to be Rs 58,190 crore in FY12, 41 per cent more than Rs 41,200 crore in FY11. Customs duty foregone on diamond and gold, is seen to be at Rs 57,073 crore in FY12, 16 per cent higher than it was in previous year.

Revenue foregone due to personal income tax concessions, a large part of which is taken up through deductions allowed under Section 80C of the Income Tax Act, is estimated to be at Rs 42,320 crore in current year, 15 per cent higher than in previous year. Interestingly, tax concessions given to corporate tax payers is estimated to be 11 per cent lower, at Rs 51,292 core, than last year's Rs 57,912 crore.

Cost of tax incentives
The government has put a value to various tax concessions. Here's the latest.
	Revenue foregone during:
	2011-12*	2010-11	YoY change
Corporate income tax	51292	57912	-11.43
Personal income tax	42320	36826	14.92
Excise	212167	192227	10.37
Customs**	276093	230131	19.97
* estimates
** includes revenue foregone from export promotion schemes other than drawback
Figures in Rs crore

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 revenues	FY12*          (Rs crore)	FY12**	FY11	FY10	FY09	FY08
Corporation tax	228750	5.04	21.11	14.68	10.62	33.68
Income tax	114350	21.18	12.66	24.77	3.31	36.69
Central excise duties	129926	6.22	29.59	-2.11	-12.00	4.94
Customs	136214	12.03	58.18	-16.58	-4.07	20.61
Service tax	82562	36.90	18.79	-4.13	18.79	36.45
* 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.

life in financial markets: 7% of vodafone group's revenues are from india

Vodafone Group is in the news in India due to the Bombay High Court disallowing its petitition against the Indian Income Tax Department's claim of Rs 123 billion (Rs 12,300 crore) for capital gains tax on Vodafone's about Rs 900 billion (Rs 90,000 crore) cost of acquiring Hutchison Essar 2-3 years back.

How much does Vodafone earn from India? Vodafone Group, the London-listed company, had a total turnover of Rs 3,318 billion (Rs 331,800 crore) for four quarters up to the quarter-ended June this year, according to Bloomberg data. But how much of this is earned from Vodafone's operations in India is not known.

The Bloomberg data gave a geographical break-up of the revenues only for select quarters. The latest two quarters for which such a break-up was available were the quarters-ended December 2009 and June 2009. The analysis of the sum of these two quarters provides an interesting insight. In these two quarters, the global telecom revenues of Vodafone, across its voice, messaging and data businesses, aggregated to Rs 1,401 billion (Rs 140,100 crore). Of this, India contributed Rs 106.30 billion (Rs 10,630 crore), or 7.59 per cent.