In a press release published on January 9, the central government reported the following increases in tax collections during April-December 2016, compared to the corresponding period of previous year:
- Central excise duty: 43 percent.
- Service tax: 23.9 percent.
- Customs duty: 4.1 percent.
- Corporation tax: 4.4 percent.
- Income tax: 24.6 percent.
These are large values. Holding other things constant, they suggest buoyant economic activity. But as Suyash Rai writes, when looking at tax data, we have to look at the extent to which other things are indeed constant. When analysing tax data, in order to read the state of the macroeconomy, we need to adjust for the part of the tax revenues which are on account of ‘Additional Revenue Mobilisation’ (ARM). Two kinds of ARM are:
- An increase in tax rate: additional revenues due to higher rate do not indicate robustness of the underlying activity.
- An administrative measure: additional revenues from one-time administrative measures (eg. a tax amnesty scheme) may not reflect the underlying economic activity.
Let us walk through the major taxes, and see what we can tell, and what we do not know.
Excise duty
The biggest increase in tax collection has come from excise duty. The collection during April-December 2016 was 43 percent higher than the corresponding period in 2015. Collection grew by 45 percent in April-October, 33.7 percent in November, and 34.8 percent in December, compared to the corresponding periods of previous year. Without ARM the numbers are flat as shown below.
| Increase in excise duty collection (in percent) | April-Oct | Nov | Dec |
| With ARM | 45 | 33.7 | 34.8 |
| Without ARM (estimate) | 4.22 | 0 | NA |
Service tax
During April-December, 2016, service tax collections were up 23.9 percent compared to the corresponding period last year. During April-October, the increase was 27 percent, while it decelerated to 15.5 percent for November and 3.67 percent for December. This deceleration is significant, but we need to understand the increase without ARM.
| Increase in service tax collection (in percent) | April-Oct | Nov | Dec |
| With ARM | 26.9 | 15.52 | 3.67 |
| Without ARM (estimate) | 17.1 | 10 | 0.22 |
Customs duty
During April-December 2016, customs duty collection has increased by 4.1 percent, compared to the same period in 2015. During the corresponding period in previous year, the growth in collection was 17 percent. For November 2016, collection increased by about 16 percent. However, for the month of December, the customs collection was 7.6 percent lower than the same month in 2015
Corporation tax
Corporation tax collection during April-December was 4.4 percent higher than the corresponding period last year. Last year, during the same period, the growth in corporation tax collection was 11.74 percent. Collection in December 2016 was 4.7 percent lower than that in December 2015.
Income Tax
During April-December, income tax collection was 24.6 percent higher than that in the corresponding period of 2015. However, a key factor here is the income declaration scheme that ended on September 30, 2016, and had mandated payment of tax, surcharge and penalty by November 30, 2016. The expected tax inflow from the scheme was about Rs. 30,000 crore. This is a form of additional revenue mobilisation. Hence, unless we know the increase without this ARM, it is difficult to interpret the number. For instance, if Rs. 25,000 crore was collected under the scheme, the increase in income tax collection during April-December would be just over 8.3 percent.
Conclusion
The analysis presented by Suyash Rai here suggests that the reading of tax collection numbers as signifiers of robust economic activity may be too optimistic.
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