Industrial slowdown leads to tax worries for government

The finance ministry is worried about a slowdown in corporate tax collections this year, amid lower industrial production growth and a steady hike in interest rates by the Reserve Bank of India.

''The government is worried over sluggish growth in corporate advance tax collection, but there is still no reason to doubt it would miss the budget deficit aim for this fiscal year,'' finance secretary Sunil Mitra told reporters in New Delhi on Thursday.

The union government in its budget has set deficit target of 4.6 per cent of gross domestic product for the current fiscal year. For this, it is banking on 18 per cent growth in tax collections for the year.

Rising inflation, which has prompted the RBI to raise its lending rate 10 times since March 2010 (the latest hike coming on Friday), is crimping economic activity and is likely to hurt corporate tax collection, Mitra said.

Now again, the RBI raised interest rates - yersterday it came out with announcement on the rate increase. We have to see how it works out," Mitra said.

His statement follows the RBI's announcement of hiking its short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points to contain inflation, which is hovering at over 9 per cent.