The cash registers at North Block are ringing loud, thanks to the India growth story which shows no signs of any twist in the tale. Signalling a buoyant trend in revenue growth, direct tax collection crossed the Rs 1-lakh crore milestone this fiscal, recording a growth of 41% up to September 15. Spurred by the growth, the finance ministry is now looking at collections of Rs 3 lakh crore during 2007-08 compared to Rs 2,67,490 crore last fiscal.
The robust growth in tax collections signal a strong corporate profit outlook and a significant jump in the income level of taxpayers. A case in point is the over 50% growth in the payment of tax deducted at source (TDS), which is usually paid by the salaried class. A high growth rate in this category shows that overall salary levels have risen.
Advance tax payments, which are paid by companies and individual taxpayers based on projected income, have been bullish. According to figures collated by the government, advance tax collections grew 32.18% to Rs 57,500 crore up to September 15. This clearly shows most sectors are on a strong wicket. “The figures are at variance with what the IIP suggested. They reveal that growth is quite broad-based and most sectors barring, one or two such as two-wheelers, have paid higher advance tax,” HDFC Bank chief economist Abheek Barua said.
Higher tax collections could also augur well for the government’s fiscal balance. Higher revenue collections could help the government meet its expenses on account of a large number of social spending programmes. This may ease the pressure on the government to borrow from external sources, thus keeping fiscal deficit within target. “This clearly means that the fiscal situation is under control. If the trend continues, the government may not have to borrow in the second half of the fiscal and the pressure on interest rates would ease,” Barua added.
The sustained growth in revenue collections is also expected to have an upside for the government’s fiscal responsibility targets. In the current fiscal, revenue deficit is estimated at Rs 71,478 crore, which is 1.5% of the projected GDP this fiscal. Fiscal deficit is estimated at Rs 1,50,948 crore, which is 3.3% of GDP. The total revenue receipts of the Central government are estimated to be Rs 4,86,422 crore.
“This augurs well for the government as increased revenues would take care of increased spending and also help in meeting the revenue and fiscal deficit targets set in the Fiscal Responsibility and Budget Management (FRBM) Act. The government has to wipe out revenue deficit and reduce fiscal deficit to 3% by 2008-09,” National Institute of Public Finance and Policy’s Amaresh Bagchi said. It may be noted that RBI, in its report on external debt in August, has emphasised on adhering to the FRBM targets saying it was critical for macroeconomic, financial, external sector and budgetary sustainability.
Net collection of direct taxes, including corporate tax and income tax, is estimated to have gone up by 41.5% to Rs 1,09,000 crore till September 15, compared to Rs 77,000 crore during the corresponding period last year. If the growth rate continues to be over 40%, direct tax collections could touch Rs 3 lakh crore this fiscal. The government has set a target of Rs 2,67,490 crore for direct tax collections, compared to Rs 2,30,091 crore in 2006-07 (revised estimates) –– representing a growth rate of about 16.25%.
The income-tax department’s emphasis on improvement of tax administration and strengthening of third-party information under Annual Information Return seems to be yielding results, besides an improvement in overall income levels.
“Tax administration, especially on account of TDS and tax information network are working very well. This, coupled with good corporate performance and higher incomes, is contributing to the growth witnessed in collections. Also, the share of agriculture income to GDP is coming down which is a significant contributory factor,” Mr Bagchi said.
ONGC has emerged as the highest tax payer so far by depositing Rs 3,400 crore as advance tax by September 15, a source said.
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