Why October's Tax Collections Saw a Decline: Key Trends and Insights

October Tax Decline: Corporation and Personal Tax Impact

October 2024 witnessed a significant dip in corporation and personal income tax collections, primarily due to economic cycles and the festival season’s impact. Corporation tax fell 16% YoY to ₹26,356 crore, while personal income tax dropped 12% YoY to ₹61,937 crore. This resulted in an overall 11.9% decline in direct taxes for the month, amounting to ₹88,293 crore, according to the Controller General of Accounts (CGA).

Key Figures and Projections

  1. Corporation Tax Trends:
    • April-October FY25: Up 1.2%, far below the 12% growth projected in the Budget.
    • October YoY Decline: Reflects economic slowdown and cyclical challenges.
  2. Personal Income Tax Trends:
    • April-October FY25 Growth: 16.8%, surpassing the Budget’s projection of 13.6% growth.
    • Historical growth: FY24 October recorded a sharp 24% rise, indicating seasonal variations.
  3. Excise Duty Dip:
    • Fell 12% in October and rose just 0.6% YTD, below the 4.5% Budget target.
    • Scrapped windfall taxes on crude oil and fuel exports have reduced excise revenue further.
  4. Gross Tax Collections:
    • Overall growth was 1.6% in October and 9.7% YTD, compared to the 10.8% annual projection.

Why the Decline? Insights from Experts

Experts suggest the slowdown is primarily cyclical and not structural. Corporate results and GDP trends support this:

  • GDP Growth: Fell to a seven-quarter low of 5.4% in Q2 FY25.
  • Corporate Guidance: Indicates a slowing economy, aligning with the reduced tax collections.

Tax expert Maheshwari noted that while corporation tax collections might remain low due to the ongoing slowdown, government spending increases could reverse this trend in upcoming quarters.

Festival Season: A Double-Edged Sword?

While October coincided with the festival season, experts caution against overinterpreting its impact on tax collections.

  • Low Corporation Tax Base: October typically has a small base for corporation tax, with arrear payments distorting YoY trends.
  • GST Collection as a Benchmark: GST collections, which reflect transaction activity in October, rose 8.5% YoY to ₹1.82 trillion in November.

Looking Ahead: FY25 Projections

Despite the October slump, the April-October direct tax collection reached over ₹11 trillion, rising 11.1% YoY, close to the Budget’s 12.8% growth projection. The trend suggests resilience, even amid economic slowdowns.

Key Takeaway:
The October tax collection decline highlights the interplay of cyclical slowdowns, festival dynamics, and economic adjustments. With increased government spending and potential GDP recovery, tax collections are expected to stabilize in the coming quarters.