Panel Suspects Link Between High Tax Refunds And Steep Budget Targets

A parliamentary panel raised an apprehension that the government may be forcing taxpayers to pay excess advance tax to meet revenue target when collections are falling short of expectations.

The government paid Rs 1.71 lakh crore as refund of direct taxes paid in 2019-20 up to January compared with 1.61 lakh crore last year, according to a report by Parliamentary Standing Committee on Finance.

A higher refund increased the amount of interest paid to such taxpayers to Rs 22,856 crore till January against Rs 20,566 crore in 2018-19, it said. The Income Tax Department pays an interest of 6 percent on the excess amount paid as tax.

“This raises an apprehension that the assessees may be constrained to pay excess advance tax to fulfill revenue targets of the department,” said the report of the panel chaired by Jayant Sinha, a member of parliament of the ruling Bharatiya Janata Party. Such “over-estimation” automatically results in large amount of tax refunds along with accruing interest on refunds, which is avoidable, the panel said.

With the GDP growth slowing to its worst pace in a decade, the government’s tax collections have fallen short of budget estimates. It revised its direct tax collection target for 2019-20 downwards to Rs 11.70 lakh from Rs 13.35 lakh crore projected earlier.

“The practice [higher refunds] is a natural outcome of high collection target being imposed on assessing officers,” said Riaz Thingna, director at Grant Thornton Advisory. There are two factors involved: some taxpayers very often pay high taxes on a conservative basis; and pressure on taxpayers by the tax department to pay high advance taxes to meet their revenue targets in the short run, he said.

The parliamentary panel also pointed out that apart from the direct tax refund, the government also refunded Rs 1.16 lakh crore to indirect taxpayers. It “should look into the reasons behind such large amount of refunds and take corrective measures”, the panel said.