Slowing economic activity has cast its shadow on governments direct tax collections, which rose a paltry 0.89% last month to Rs 14,264 crore, making the revised lower target for the fiscal year appear difficult to achieve.

Any shortfall in direct tax collections could further worsen the fiscal deficit, now pegged at 6% of gross domestic product for the financial year, and force the government to borrow more from the market to bridge the shortfall. The government has already been forced to revise the fiscal deficit target upwards from its initial projection of 2.5%.

Data released by the Central Board of Direct Taxes on Thursday revealed direct tax collections rose nearly 11.3 % in the 11 months to end-February, making the February number seem particularly weak and casting doubts on the government ability to meet its annual target. Net direct tax collections rose to Rs 2,58,902 crore during the period, which is 76.37% of the revised target of Rs 3,45,000 crore.

The government had budgeted direct tax collections of Rs 3,65,000 crore at the start of the year, but revised the target last month. Tax collections started slowing from October, mirroring the slowdown in the overall economy.
The probability of a reversal in this trend in month in March is minimal. Even after considering the fact that tax inflows in last months of the fiscal are high, it will be difficult to meet the collection targets, said Saumitra Chaudhury, economist with ratings company Icra and a member of Prime Ministers economic advisory council.

However, a CBDT official said the board was confident of achieving the revised target. The tax departments optimism stems from the fact that the last and final installment of advance tax payments is due in March. Advance tax is paid in four installmentsJune, September, December and Marchand is based on taxpayers projected income. The Income-Tax department is also keeping a close watch on potential evaders as part of its determination to meet the revised target.

Corporate tax collections stood at Rs1,62,617 crore in April-February, up nearly 17%, while personal income tax collections, which include fringe benefit tax, securities transaction tax and banking cash transaction tax, grew 3.03% to Rs 95,930 crore during the same period.

Fringe benefit tax collections rose 20% and banking cash transaction tax rose 14.46% while collections of securities transaction tax fell 35.54%.