Excise receipts seen up 25% in FY21, while other taxes falter

Thanks primarily to the sharp hikes in excise duty rates on auto fuels three times since October last year, the Centre’s collections from excise duties grew a robust 34% on year in April-September this fiscal to Rs 1.28 lakh crore. The big rise in excise collections is an outlier as the Centre’s gross tax receipts declined by 22% during the period, due to the lockdown’s adverse effect on the economy, that had been on a downturn even earlier.

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Given that auto fuel sales have picked up substantially in recent months – Crisil sees annual sales down by just 11% –, the overall excise collections this year could be up Rs 60,000 crore over the FY20 mop-up of Rs 2.4 lakh crore, official sources reckon. That represents an annual increase of 25%. According to the Budget Estimate for FY21, the collections of excise duties – which includes basic excise, special additional excise on auto fuels, road/infra cess and cess on crude oil – in the year are to be Rs 2.67 lakh crore.

The government believes that rise in excise mop-up could help boost the gross tax revenue to close to last year’s level, despite the big shortfall in the first half. Finance secretary Ajay Bhushan Pandey last month expressed confidence that the potentially robust economic recovery in the second half of the fiscal might help the government reach the same level of gross tax collections as achieved last year.

With the gradual lifting of the lockdown, petrol sales were up 2% annually in September, the first month in the current fiscal to post a positive growth. Diesel sales, which remained down 7% annually even in September, saw a pick up in October. Diesel sales rose 24.5% in the first half of October compared with the same period of September.

The Centre’s tax on diesel (basic excise, special additional excise and road/infra cess) is currently Rs 31.83/litre, compared with just Rs 15.83/litre in early October 2019. Corresponding figures for petrol are Rs 32.98 and Rs 19.98. The divisible portion of the tax pool, however, remained the same at Rs 4.83 (diesel) and Rs 2.98 (petrol), which explains the big jump projected for the Centre’s revenue from taxes on petroleum products in FY21, while states’ (post-devolution) revenue is seen to rise only modestly. The Centre hiked special additional excise/cess levied on petrol and diesel sharply in October 2019, March 2020 and then in May. These taxes are not part of divisible pool, only the basic excise is.

Taxes on petroleum products comprise about 65% of the petroleum sector’s contribution to the central exchequer. Cess and royalty on domestic crude production, customs duty on crude imports, dividends, etc, make up for the rest.

Among other taxes, income and corporate taxes were down by 40% and 22%, respectively, on year in the first half of this year. Similarly, central GST and customs collection were down 34% and 44%, respectively.

The budget estimate for gross tax revenue collection is pegged at Rs 24.2 lakh crore but given budget numbers were announced before pandemic struck, the government officials say an informal target is to get close to last year collections of Rs 20.09 lakh crore. The collection last year had itself seen a 3.5% decline from FY19.

Increased central government duties will raise the taxable value of petrol and diesel for the levy of state sales tax/VAT. Many states such as Gujarat, Haryana, Delhi, Rajasthan, Maharashtra and Karnataka have increased the sales tax/VAT on the two transportation fuels. States earned around Rs 1.8 lakh crore from sales tax and VAT on petrol and diesel in FY20; Crisil expects this figure to rise to Rs 1.96 lakh crore in the current fiscal.