Tax revenue surpassing expectations?

By S. Swaminathan

Fears about an escalation in fiscal deficit during the current year are perhaps getting subdued. This is not on account of any dramatic improvement in expenditure management, although the trends in expenditure until October reveal that there had indeed been a moderation of Central Government expenditure.

From a 29 per cent increase in April-October 1998, the increase had come down to 5 per cent during April-October 1999, with non- plan expenditure growing by a mere 2 per cent as compared to 33 per cent during the corresponding period last year.

On an upward curve

The evidence of a gratifying improvement in Government finances lies rather in the substantial pick-up in tax revenue collections over the first nine months of the current year by nearly 17.8 per cent, excluding minor taxes. As the accompanying Table shows, during April-December 1999 direct taxes (income tax plus corporation tax) amounting to Rs. 33,976 crores have shown an increase of 15.3 per cent. This is higher than the increase of 12.75 per cent projected in the Union budget for 1999-2000.

As for indirect taxes, the collections during April-December have amounted to Rs. 76,878 crores, showing an increase of 18.98 per cent over the collections for the corresponding period last year. This rate of growth too far exceeds the rate of 12.65 per cent projected in the budget for the whole year. The excise duties collections at Rs. 42,335 crores during the first nine months this year represent a growth by 19.90 per cent far exceeding the growth rate projected in the budget, namely 11.08 per cent. The customs duties collections at Rs. 34,543 crores this year represent a growth rate of 17.87 per cent as compared to the budgeted growth rate of 14.66 per cent.

While the buoyancy in customs duties collections has to be explained largely in terms of the doubling of crude oil prices in the international markets at around $24 a barrel over April- December, the surge in excise duties yield has resulted from the unmistakable rebound in industrial production during the current year. If anything, these trends (in petroleum prices and in industrial production) will get reinforced during the last quarter of the current fiscal year so much so that the prospects of total tax revenues exceeding the target of Rs. 168,002 crores (excluding minor taxes) must be considered quite reasonable.

Learning from the trends

Both in 1997-98 and 1998-99, corporation tax collections grew at an average rate of 20 per cent despite the fact that corporate earnings were affected by a plethora of problems and particularly by the slowdown in demand. Given a marked upswing in profitability during the current year, the projection of corporate tax revenues for the whole year at Rs. 29,750 crores may well prove an underestimate.

Excise duties which yielded Rs. 56,440 crores in 1998-99 despite a lacklustre 4 per cent growth in industrial production are bound to cross the estimate of Rs. 62,693 crores set in the budget for the simple reason that industrial output growth during the year will most probably exceed 7 per cent.

Similarly the customs duties which grossed Rs. 44,173 crores in 1998-99 are bound to register buoyant growth during the current year, given the probability that the growth rate in imports will be around 11 per cent this year contrasting with near-stagnation last year.

With all the tasks of re-tariffication which have become necessary in the light of the decision to eliminate quantitative restrictions on imports by 2000-2001, the horizons for customs duties seem only to have widened. This apart, the clamour for adjustment of import tariff rates for affording some breathing time for domestic industry vis-a-vis import competition cannot but lead to a distinct increase in rates fetching much-needed revenue for the Government.

While all indications seem to point to an era of revenue buoyancy for the Government, the eternal question of raising direct tax revenue as a component of the total tax system may not lend itself to any concrete and politically viable solution.

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