New Delhi: The advance taxes paid by Indian companies and individuals saw only a marginal rise in the December quarter, despite the government recently hinting at action against evaders.
Advance taxes in the third quarter of this fiscal grew 10.44% to Rs.78,266 crore from Rs.70,826 crore in the year ago, the finance ministry said in a statement.
The government aims to collect Rs.5.7 trillion in direct taxes, an annual growth of about 15%. But, in the first eight months of the fiscal, it managed only Rs.2.7 trillion, pointing to a substantial shortfall in year-end revenue as corporate earnings growth slows.
“A slowdown in industrial activity and a decline in corporate profits have taken a toll on tax collections,” said Madan Sabnavis, chief economist at CARE ratings, a credit ratings agency. “Corporate earnings have been on a decline since the fourth quarter of the last fiscal and are likely to be under pressure in the current quarter as well.”
The marginal rise in advance tax payments in the third quarter may also not make it easy for the government to achieve its direct tax collection targets.
Last week, during the release of the mid-year review, chief economic adviser in the finance ministry Raghuram Rajan had admitted that tax collections could fall short of budget estimates, reasoning that a stressed macroeconomic environment will affect corporate tax collections.
Given the expected shortfall in excise and customs collections as well, the government may find it difficult to meet even its revised fiscal deficit target of 5.3%.
“A shortfall in corporate tax collections and in excise mop-up due to weak industrial activity can make it difficult for the government to meet its fiscal deficit target,” said Sabnavis. “This does not bode well for the government’s finances, which are already under pressure.”
The December quarter advance tax payments see companies paying their third instalment and individuals paying their second installment.
Companies need to pay 15% of their total advance tax in the first quarter, 30% each in the second and third quarter, respectively, and 25% in the last quarter.
To ensure robust growth in the mop up, the government had warned tax evaders of action by the income-tax department just a few days before the advance tax was due on 15 December. Revenue secretary Sumit Bose said the government is monitoring data pertaining to high-value financial transactions, including bank deposits, credit card transactions and property purchases.
Advance tax collections this fiscal rose by an annual 7.52%, with corporate payments expanding by 7% and personal tax collections rising more than 12%.