During 2018-19, the government had faced a shortfall of about Rs 95,000 crore in tax revenue [Rs 60,000 crore in GST and Rs 35,000 crore in direct tax] vis-à-vis the revised estimate which itself was Rs 100,000 crore lower than the target fixed while presenting the budget on February 1, 2018. This forced it to compromise on development expenditure, postpone payments such as subsidies to the next year even as it didn’t want to miss the fiscal target.
During the current year also, tax collections are not showing the required buoyancy [in June, 2019, the monthly GST collection was even less than Rs 100,000 crore as against over Rs 110,000 crore needed to reach the yearly target].
The government is making relentless efforts [using on high-tech tools such as data analytics, artificial intelligence etc to match income-tax return filings with information on high value purchases to figure out assesses who either don’t pay or pay less in relation to their income] to boost tax collection. Yet, it seems that these efforts are being stymied by evaders who with the help of chartered accounts [CAs] have found umpteen ways of dodging the taxman.
The tax evasion is happening on an unprecedented scale even under GST regime – the most revolutionary reforms of the contemporary times which is intrinsically expected to be free from this malpractice. The tax authorities have unraveled tens of thousands of fake distributors/dealers who have used fictitious invoices [bills not backed by actual purchase] to avail of input tax credit [ITC] thereby defrauding the exchequer by thousands of crores.
In fact, the authorities face a double whammy as on the one hand, in a bid to ease the burden of tax incidence on the consumers, the GST Council has moved hundreds of items from higher tax slab say 28% to 18% or 12% slab depriving the exchequer close to Rs 100,000 crore every year on the other, it has not been able to rein in the evaders implying continuing leakages.
Launching investigation, assessment [and prosecution wherever necessary] and forcing evaders to pay up [albeit with penalty and interest] is a time consuming process. Meanwhile, the union’s finances have already been dwelt a crippling blow.
What then, is the government doing to keep up the momentum of tax collection to meet budgetary target?
An idea of the likely strategy is available from the Union Budget for 2019-20 as also the reply finance minister, Nirmala Sitharaman gave on the debate in particular, her detailed reply to some incisive posers of former finance minister, P Chidambaram.
In the budget speech, she announced the “Sabka Vishwas” legacy dispute resolution scheme for litigation related to indirect taxes viz. excise and service tax under the erstwhile dispensation [prior to July 1, 2017 when GST was launched]. Under the scheme, the assesses gets to settle the demand by paying a certain portion of disputed tax even as he/she is fully exempted from interest and penalty.
According to an estimate, a total of Rs 375,000 crore is involved in legacy dispute on indirect taxes. Even if, the assesses pay up 50% of this amount, the government will get Rs 187,500 crore.
On similar lines, a Task Force to draft the Direct Tax Code [set up in November 2017] is expected to recommend a one-time amnesty to resolve legacy income-tax disputes. While, giving a written reply in the Lok Sabha on July 22, 2016, the then minister of state for finance, Santosh K Gangwar, informed that as on March 31, 2016, the total amount stuck in direct tax litigations was Rs 8,20,741 crore [by March 31, 2018, this had already gone up to Rs 1134,000 crore]. @ 50%, the government can garner about Rs 410,000 crore.
Put together, the one-time amnesty scheme window [say for three-four months] for disputed direct and indirect taxes could thus help it mobilize about Rs 597,500 crore [187,500 crore plus 410,000 crore] close to Rs 600,000 crore. This bonanza will not only make up for the impending shortfall in tax collection during the current year but also give sufficient elbow room for clearing arrears of subsidy dues in major areas such as fertilizers, food and oil. It will also help in taking pressure off the borrowings thereby leaving more funds for private sector.
However, the success of the schemes will depend on their design and implementation. The mandarins in the finance ministry must ensure that the assesses are completely exonerated from the interest and penalty even as it may adopt a flexible approach in regard to payment of the principal amount [for instance, a lower percentage may be considered in cases where the department feels that the order of the High Court/Supreme Court could go in favor of the assesses].
For the future, the government should take steps to ensure that the number of tax cases going for litigation are kept at the bare minimum.
In July, 2018, it had increased the threshold monetary limits for filing departmental appeals at various levels. The tax officials were asked not to pursue appeals for cases up to Rs 2 million at the ITAT [Income Tax Appellate Tribunal] level. Earlier, this threshold was Rs 1 million. The minimum threshold for cases going to high courts was raised to Rs 5 million from Rs 2 million and for those going to the apex court to Rs 10 million up from Rs 2.5 million.
This stereo-typed approach needs to be replaced by a proactive ‘analytic-based’ intervention wherein a comprehensive internal examination conclusively shows that the department has 99.9% chance of winning the case in appeal. At the same time, the government needs to improve the infrastructure and efficiency in tribunals and courts for expeditious disposal of cases.
Apart from boosting tax revenue, the reduction in volume of tax litigation and their disposal on fast track will improve the ease of doing business including for foreign companies [who are entangled in cross-border tax and transfer pricing issues] even as the taxpayer will get to spend more time and effort on more productive matters.
Hopefully, things will pan out as planned and Team Modi won’t face disappointment at the year end.
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