Direct tax collections rise 18.2% in April-December in breather for government

New Delhi: Direct tax collections grew by more than 18% in the first nine months of the fiscal year to two-thirds of the full-year target, providing a breather to the government as it struggles to contain the fiscal deficit.

Government revenues have been under pressure due to a shortfall in revenue from the goods and services tax (GST), prompting it to announce additional borrowing of Rs50,000 crore last month to fund spending in key sectors of the economy.

Net direct tax collections in April-December rose 18.2% to Rs6.56 trillion, or 67% of the budgeted direct tax collection of Rs9.8 trillion for the full fiscal year ending March, the tax department said in a statement on Tuesday. This means the remaining one-third has to come in the last quarter of 2017-18, which is achievable going by previous years’ trends.

In the year-ago period, direct tax collections made up 65.3% of the full-year budget estimate. The government barely managed to meet the target at the end of the year.

Gross tax collections before adjusting for refunds grew 12.6% to Rs7.6 trillion. Refunds in the period amounted to Rs1.12 trillion. Advance tax collections grew by 12.7% to Rs3.18 trillion, led by growth in personal advance income tax collections.

Personal advance income tax collections grew by 21.6% while corporate advance tax collections grew by 10.9%, the statement added.

Healthy growth in direct tax collections will help ease the pressure on the fiscal front. India is targeting curbing the fiscal deficit to 3.2% of gross domestic product in 2017-18. Data released so far suggests this will be challenging.

Data released by the Controller General of Accounts showed that the government exhausted 112% of its Rs5.5 trillion full-year fiscal deficit by November-end because of lower-than-expected revenue collections and higher expenditure.

As of November-end, expenditure was nearly 69% of the budget estimate. Revenue collections made up only 53% of the estimate.

Suspected tax evasion and a cut in tax rates on many items have seen collections from GST falling progressively since the tax was implemented in July. In December, GST revenues (for the month of November) came in at Rs80,808 crore, falling from Rs94,063 crore collected in August.

As of 9 January, the government had managed to raise around Rs53,900 crore, against the budgeted Rs72,000 crore, through disinvestment, according to information available from the finance ministry.

“There is going to be a shortfall in indirect tax targets but they may manage to meet the direct tax collections. However, the growth in direct tax collections may not be enough to compensate for the shortfall in GST collections,” said Madan Sabnavis, chief economist at Care Ratings. “The fact that the government is going to borrow an additional Rs50,000 crore indicates that the fiscal deficit target is unlikely to be met,” he said.