Advance tax growth slows

The economic slowdown appears to be casting its shadow over corporate profitability expectations. So while direct tax proceeds have almost doubled in the first four months of the fiscal,the advance tax kitty has not risen proportionately.

While corporate collections from direct tax up to end-July increased by 46.95% over the previous fiscal, advance tax collections rose by a mere 18%. Until July 31 this year, the government netted Rs 23,500 crore in advance tax, against Rs 19,900 crore in the same period a year earlier. In 2007, advance tax collections from the first installment increased 35%, against Rs 14,700 crore up to July 31,2006.

"There has been an increase in corporate advance tax collections, but it is lower than what was recorded last fiscal," an official source told FE.

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Deadlock may delay Central Sales Tax phase out

In a fresh set back to the phase-out of the central sales tax (CST),the Centre and states have once again been unable to work out an adequate and agreeable compensation package for the planned 1% cut in the tax. The reduction in the CST rate was originally slated to be notified from April 1, 2008, as had been announced in this year's Budget and would have brought it down from 3% to 2%.

The stalemate has come up despite the empowered committee in its meeting earlier this month re-iterating its promise to reduce the rate of CST from 3% to 2%. Sources close to the development said the phase out process of the tax may now in fact get temporarily postponed, if a compromise is not worked out soon enough.

"While this would not be an ideal situation,and we hope that things get back on track, we can not completely rule out a delay in the phase out of CST,"an official source said.

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The American economy The long hangover

It may not be official but it is increasingly obvious: America's economy has slipped into recession. The latest labour-market figures-a jump in the unemployment rate to 5.1% and the loss of 98,000 private-sector jobs in March, the fourth consecutive month of decline-point to a shrinking economy.So do surveys of manufacturing and services. So does Ben Bernanke, chairman of the Federal Reserve. On April 2nd he told a congressional committee that output was unlikely to "grow much, if at all, over the first half of 2008 and could even contract slightly."

The official judges of American downturns-a group of academics at the National Bureau of Economic Research (NBER)-define a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales." (Contrary to popular belief, recession does not require two consecutive quarters of falling output.) Though the NBER's wonks will not pronounce for many months, their criteria look increasingly likely to be met.

The question now is: what kind of recession will this be? Shallow or deep; short or long? So far, it seems remarkably gentle, given that many think America is suffering its worst financial shock since the Great Depression. Since December the economy has shed an average of almost 80,000 jobs a month. In most recessions a rate of 150,000200,000 is normal.

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