Amid robust tax growth, customs and excise duties decline over 10% in Q1

Customs and excise duties yielded over ten per cent less in revenues to the exchequer in the first quarter of the current financial year compared to the corresponding period of the previous year even as overall tax collections grew way above the budget projections due to direct taxes and goods and services tax (GST). Going forward, the decline may be offset by windfall tax imposed by the government on domestic crude production and export of fuel products.

Revenues from customs duty declined by almost 12 per cent at 36,467 crore and excise duty mop up fell around ten per cent at Rs 61,228 crore during April-June of FY'23.

Combining both, receipts from customs and excise duties were down 10.59 per cent at Rs 97,695 crore in Q1 of FY'23 against 1.09 trillion in the corresponding quarter of the previous year, showed data released by the Controller General of Accounts recently.

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While less excise duty collections are understandable given the fact that those were projected to decline by a bit over 14 per cent at Rs 335,000 during 2022-23 in the Budget Estimates itself compared to the actual collections of Rs 390,807 crore in 2021-22, the behaviour of customs duty receipts is a bit tricky.

This was so as the government slashed excise duty on petrol by Rs five and diesel by Rs 10 a litre on November 4 during 2021-22. After that the government announced another cut of Rs eight on petrol and Rs six a litre on diesel on May 21 which was not factored in the Budget Estimates. The latest cut will give a hit of Rs one trillion to the exchequer in a year and Rs 86,000 crore in the remaining months of FY'23.

After introduction of GST from April one 2017, over 90 per cent of excise duty collections come from the petroleum sector. For instance, excise duty on petroleum sector contributed Rs 3.63 trillion in 2021-22 which represented almost 93 per cent of total Rs 3.91 trillion from that tax.

However, decline in customs duty in the first quarter of FY'23 was accounted for by dismal figures in April when the collections fell by 42 per cent at Rs 10,372 crore compared to Rs 17,906 crore in the same month a year ago.

While part of the explanation has to do with cutting customs duty on items such as palm oil and cotton, one may argue that the duty was cut on more items even then collections from that tax did not fall in May as well as in June.

Moreover, the country's merchandise imports remained robust in all the three months at over $60 billion each. However, there was a small increase in May at $63.22 billion in May compared to $60.3 in April. July saw further increase at $66.3 billion.

However, yearly growth in merchandise imports was just 31 per cent in April whereas it was 63 per cent in May and 57 per cent in June. This was due to lockdown conditions imposed last year due to the second Covid-19 wave in India and its trade partner countries.

The rupee depreciation against the dollar would have also played a part in more customs duty in rupee terms. While the rupee stood at 76.18 in April on average, it depreciated further to 77.29 in May and 78.01 in June.

However, due to robust direct taxes and GST collections, tax collections (before devolution to the states) grew 22 per cent at Rs 6.5 trillion in the first quarter of FY'23. This is way higher than just 1.8 per cent growth in tax collections projected in the Budget Estimates for 2022-23 over actual tax receipts in the previous year.