Challenges in Corporate Tax and Excise Duty Collections

Recent trends indicate that meeting Budget Estimates (BE) for Corporate Tax (CT) and Union Excise Duty will be challenging. The Union Budget for Fiscal Year 2025-26 is set to be presented on February 1, and revised figures for these levies will be disclosed. The Income Tax Department has reported an actual growth rate in net Corporate Tax of approximately 8.6 per cent, which falls short of the targeted growth rate of 10.5 per cent. The Budget Estimate for FY25 stands at ₹10.20 lakh crore, compared to the Revised Estimate of ₹9.23 lakh crore from FY24. Factors such as a slowdown in urban demand, reduced government spending due to the model code of conduct, and disruptions caused by the monsoon have adversely affected corporate profitability, impacting CT collections.

Current Economic Context

The economic landscape is influenced by various factors. The slowdown in urban demand has raised concerns among analysts. Additionally, the model code of conduct has limited government expenditure in the initial months of the fiscal year. Monsoon-related disruptions have further complicated the situation. Despite these challenges, ICRA predicts sequential revenue growth for Indian corporations in Q3 of FY2025, driven by improved rural demand and increased government spending, especially during the festive season.

Corporate Tax Collection Analysis

The actual collection of Corporate Tax has not met expectations in recent years. For FY24, the BE was ₹9.23 lakh crore, but actual collection only exceeded ₹9.11 lakh crore. This trend raises questions about the feasibility of achieving the current fiscal year’s target of ₹10.20 lakh crore. Analysts suggest that the required growth rate in the remaining months of FY25 will be difficult to attain, given the current economic climate.

Union Excise Duty Overview

Union Excise Duty collections have also faced challenges. Data from the Controller General of Accounts (CGA) indicates a marginal decline in collections from April to November. This decline is attributed to the central rate cut in 2022. The structure of Excise Duty, which is levied on a specific rate basis for petrol and diesel, means that fluctuations in cost prices do not impact revenue. To meet the BE, average monthly collections from December to March must reach approximately ₹36,000 crore, a substantial increase from the average of ₹21,000 crore during the earlier months.

Fiscal Deficit Implications

Despite the shortfalls in CT and Union Excise Duty collections, officials maintain that these will not impact the overall fiscal deficit. Other revenue sources, including non-corporate tax collections, securities transaction tax, and Goods and Services Tax (GST), have performed well. Additionally, capital expenditure has remained low, providing some cushion against the shortfalls in tax collections.

1. CT – Corporate Tax, critical for government revenue.
2. ICRA – Independent agency forecasting economic trends.
3. CGA – Controller General of Accounts, monitors government finances.
4. BE – Budget Estimate, projected revenue for the fiscal year.
5. OPM – Operating Profit Margin, a measure of profitability.

Future Outlook for Tax Collections

The future of tax collections remains uncertain. Analysts will closely monitor economic indicators in the coming months. The festive season may provide a temporary boost, but underlying issues such as urban demand and global uncertainties could hinder sustained growth. The government’s approach to managing expenditures will also play important role in shaping the fiscal landscape for the remainder of FY25.