INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

DIRECT TAX KITTY SWELLS 40%, NEARS RS 90 K CR

  This Diwali, finance minister P Chidambaram will wear a bigger smile. Riding on the back of an 8%-plus GDP growth, direct tax collections — growing at a heady 40% — are set to cross Rs 90,000 crore by this weekend.

   With the going being so good, the government may overshoot this fiscal's direct tax budgetary estimate of Rs 2,10,419 crore. The 40% growth may also help the government achieve this year itself the statutory fiscal reduction target, originally set for next fiscal end.

   Also, the 40% rise in direct tax collections along with the 20% surge in indirect tax collections suggest two positive trends — an increase in both the tax-GDP ratio and share of direct taxes in the overall tax kitty to well above 50%.

   The development will also induce the finance ministry to push for measures that will curtail expenditure, in keeping with the FRBM targets. As per the FRBM Act, the government has to reduce revenue deficit by 0.5% of GDP and fiscal deficit by 0.3% of GDP annually. The gross fiscal deficit has to be tamed at 3% of GDP by 2008-09 end.

   The government has seen heady days this fiscal on the tax collections front. It grossed Rs 69,080 crore in the first three months while this figure was achieved in seven months last fiscal. Direct tax collections in April-October, 2005, stood at Rs 68,000 crore.

   Sources said though in the initial months there would have been some trickle-down effect from last fiscal due to the State Bank of India strike in early April, tax collection growth in the subsequent months is manifestation of the economic boom. They pointed to buoyancy in all direct tax collections. Newer levies like fringe benefit tax and securities transaction tax were also having a positive impact on the total tax kitty.