Indirect Tax Revenues Drop 24 Percent

November 5, 2009 Posted by India Briefing Reading Time: 2 minutes

Nov. 5 – India’s domestic indirect tax collection has fallen 24 percent in the past six months as the effects of the global recession continue to impact the country Finance Minister Pranab Mukherjee said.

The Ministry of Tax is now relying on economic growth in the second-half and the proposed goods and services tax (GST) regime in 2010-11 to bring about a sustained rise in tax revenues.

“The fall in indirect tax revenues is a major area of concern. The fiscal correction, which we have to make, will require some time,” Mr. Mukherjee was quoted as saying in the Hindu Business Line.

Indirect tax revenues have taken a big hit due to lower imports and a sharp fall in excise duty revenues. The decline in indirect taxes, on both customs and excise duty front, has become a source of concern for policymakers in the Finance Ministry.

In the six months to September, customs duty revenues declined to US$8.4 billion from US$12.5 billion, while excise duty revenues declined to USD8.2billion and service tax collection to US$5.1 billion. Customs duty revenues have fallen on the back of sharp decline in merchandise imports. India’s cumulative imports recorded a decline of 33 percent from April to September to US$124.6 billion (down from US$185 billion).

On the proposed GST, the government is trying to stick to the schedule of its introduction on April 1, 2010. “We are working on it. There has to be convergence. We would like to give a foolproof GST system instead of a half-baked one,” said the finance minister. Besides bringing a sustained rise in indirect tax revenues, the introduction of GST is also expected to help achieve the targets on fiscal consolidation indicated in the medium term fiscal policy statement.