The Centre is staring at a combined shortfall of up to Rs 1 trillion in excise and Customs revenues in the current financial year (FY23) compared to the Budget estimates (BE), mainly because of duty cuts on edible oil and petroleum products.
The government set a target of Rs 3.35 trillion for excise and Rs 2.13 trillion for Customs mop-up for FY23 while presenting the Budget in February.
“As excise duty collection is mainly driven by diesel volumes, we might see a clear gap in the level budgeted for FY23, following the reduction in cesses on petrol and diesel in May. We are expecting somewhere between Rs 80,000 crore and Rs 1 trillion dip in excise and customs duty collections,” a senior government official told Business Standard.
“However, customs may see some revival from the current levels, narrowing the gap against BE,” the official added.
Customs and excise duties yielded 6.9 per cent and 18.5 per cent less revenues, respectively, in the first half (April-September) of FY23 compared to the corresponding period last year, even as growth in gross tax revenue collection remained healthy at 17.6 per cent.
During the April-September period of FY23, revenues from excise duty mop-up stood at Rs 1.40 trillion, while customs duty fetched the government Rs 86,267 crore, the data released by the Controller General of Accounts showed on Monday.
The official cited above, however, indicated that the trend in customs and excise duty collection might not affect the overall indirect tax collection, as central goods and services tax (CGST) would continue to see upside and that could more than offset the shortfall.
GST collections have been over Rs 1.4 trillion for seven months till September.
“On the revenue side, the increase in gross tax collection is 17.6 per cent, with corporation tax rising by 21.7 per cent and personal income tax by 25.9 per cent.
"Both customs and excise have come down, which have lowered the pace of growth of the overall collection.
"This trend will continue as the government is unlikely to raise excise on fuel.
"And with global commodity prices coming down, value of taxable imports will reduce,” said Madan Sabnavis, chief economist, Bank of Baroda.
The government slashed the excise duty on petrol by Rs 5 and on diesel by Rs 10 a litre on November 4 during 2021-22.
After that, the government announced another cut of Rs 8 on petrol and Rs 6 a litre on diesel on May 21, which was not factored in the Budget Estimates.
Customs duty cuts on items such as palm oil and cotton to cool inflation and increase domestic supply triggered the decline in the revenue collection figures.
In FY22, both customs and excise mop-up overshot the BE by Rs 53,000 crore and Rs 59,000 crore, respectively.
“The revenue estimates of the FY23 Budget are an underestimation due to lower nominal GDP growth assumption.
"This is getting vindicated by the incoming tax revenue data,” Devendra Kumar Pant, chief economist at India Ratings, said.