Govt may miss budget targets for FY17 direct tax collections

Direct tax collections are likely to fall short of budget targets in 2016-17 with the government managing to garner only 73% of the estimated collections until February.

The pace of growth in indirect tax collections also slowed in February although the government may manage to meet the target for the full financial year.

The government may have to cut down expenditure in March, the last month of the fiscal year, to compensate for the revenue shortfall.

Data released by the finance ministry show that direct tax collections in April-February amounted to ₹6.17 lakh crore, a 10.7% rise from a year ago. After adjusting for refunds, corporate tax collections grew only 2.6% while personal income tax collections were up 19.5%.

Although the government had not budgeted for any tax inflows on account of the second income disclosure scheme under the Pradhan Mantri Garib Kalyan Yojana, ending March 31, only a good response to this scheme may bring the government closer to its direct tax collection targets for the full year.

Indirect tax collections until February amounted to ₹7.72 lakh crore, a 22% rise from the yearago period. This was 91% of the

revised indirect tax collection target set out in the budget. While excise collections till February were up 36% to ₹3.45 lakh crore, service tax grew 21% to ₹2.21 lakh crore and customs collections rose 5.2% to ₹2.05 lakh crore.

Indirect tax collections fell sharply in February mainly due to a drop in excise and service tax collections. While excise collections grew by only 7.4% in February as against 26% in January, the increase in service tax collection was also muted at 7.6% in the month against 9.4% in January.

The fall in excise duty collections can be attributed to the

removal of a favourable base effect. The Centre had raised the excise duty on petroleum products numerous times till January.

“From February 2017 onwards, the favourable impact of the hikes in excise duty on fuels undertaken from November 2015 to January 2016 have dissipated. The pace of growth of excise collections is now expected to reflect a level that is closer to the rise in consumption of fuels, as well as industrial activity in the economy,” wrote Aditi Nayar, principal economist, ICRA Ltd, in a note.