The exchequer got 19.1 per cent more from direct taxes in the first four months of the current financial year (FY18), but the amount paid by companies reflected their struggle with the goods and services tax (GST).
The total direct taxes after refunds grew 19.1 per cent at Rs 1.9 lakh crore between April and June this year. Last year, during this period, it had risen 24 per cent.
This is a minor deceleration, but when compared in terms of percentage of Budget Estimates (BE), the figures this time are rosier.
The collections constituted 19.5 per cent of the BE of direct taxes for FY18. In FY17, they had accounted for 18.8 per cent of the BE.
What is startling, however, is the slow tax collection from corporate entities. This year, this grew by 7.2 per cent in the April-July period, sharply lower than the 11.7 per cent in the same period last year.
Experts said the slowdown could be attributed to adjustments leading to destocking and the offering of discounts by companies as the government ushered in the new indirect taxation system on July 1.
Aditi Nayar, principal economist with Icra, said gross corporation tax collections recorded slower growth, reflecting factors such as subdued volume growth in various sectors as well as the discounts offered to reduce inventories ahead of the transition to the GST.
Available indicators — such as the sequential decline in growth in non-oil exports, core sector output and automobile production — suggest that industrial growth was subdued in June.
“Given the unfavourable base effect and inventory trimming prior to the onset of the GST, we expect a 1 per cent contraction in the Index of Industrial Production in June. Subsequently, the Purchasing Managers’ Index (PMI) for manufacturing as well as services indicates a contraction in July,” she added.
While the services sector PMI plunged to a four-year low in July to 45.9 points from 53.1 in June, manufacturing PMI contracted to an eight-year low of 47.9 from 50.9 points.
Madan Sabnavis, chief economist with ICRA, attributed the slowing growth in corporation tax collections to de-stocking and discounts offered by companies.
He, however, said this would be more than compensated for by rebuilding of inventories after initial hiccups due to the GST, from the third and fourth quarters. Nayar said higher prices of some commodities in April-July, compared to the same period in 2016, might be squeezing the margins of companies in some sectors. For instance, many businesses would be experiencing higher fuel costs, following the 8 per cent rise in the average crude oil prices. Also, the margins of some exporters might be getting squeezed following the rupee appreciation relative to the dollar, she added. Personal income tax collections, including the securities transaction tax (STT), were up 17.5 per cent. Growth was 31.47 per cent in the same period in FY17.
After adjusting for refunds, net growth in corporate tax collections stood at 23.2 per cent in the period under consideration. Similarly, personal income tax collections rose 15.7 per cent. Growth was 46.55 per cent in April-July of FY17. The phenomenal growth of personal income tax collections was because of a change in the rules of advance payments in FY17. Refunds to the tune of Rs 61,290 crore were issued in April-July against Rs 64,181 crore in the corresponding period of the previous financial year.