Tax Department Doubles Down On Recovering Arrears Amid Muted Direct Tax Growth
That comes as the tax department needs to make up for shortfall in direct tax collections.
The Central Board of Direct Taxes plans to double down on recovering pending dues, or amounts stuck in litigation, of about Rs 12 lakh crore to make up for the shortfall in direct tax collections.
Net direct tax collections have grown by about 5 percent year-on-year to 4.54 lakh crore as of Sept. 28, according to two government officials who preferred to remain unnamed. That compares with the government’s projection of 17 percent growth over last year for 2019-20.
The government expects to collect Rs 13.35 lakh crore in direct taxes this year, which was revised lower from Rs 13.80 lakh crore projected in the interim budget presented in February. That’s a 17 percent rise from the Rs 11.40 lakh crore collected in 2018-19, according to data on the website of Comptroller General of Accounts.
The government receives 45 percent of advance tax collections by Sept. 15 every year.
As advance tax collections haven’t grown as projected, the government would focus on collecting pending tax arrears, one of the officials cited earlier said.
According to Comptroller and Auditor General of India’s recent audit report, outstanding tax dues worth Rs 3.77 lakh crore in 2017-18 were added to pending arrears since 2013-14 amounting to Rs 7.36 lakh crore. The total dues as of March 31, 2018 were Rs 11.13 lakh crore, which this year has scaled the Rs 12-lakh-crore mark, according to the first official cited earlier. Both the officials spoke on condition of anonymity as they aren’t authorised to speak to the media.
Many Challenges Lie Ahead
But achieving the target may not be easy. At least 1.37 lakh direct tax cases are under consideration at the level of Income Tax Appellate Tribunal, high courts and Supreme Court as on March 2017, according to Economic Survey 2017-18.
The survey pointed out that 0.2 percent of these cases constituted nearly 56 percent of the total demand value, and 66 percent of pending cases had claim amounts of less than Rs 10 lakh each. The success rate of the department at all three levels of appeal for both direct and indirect tax litigation, according to the survey, is under 30 percent.
Tax dues locked up in litigation are difficult to realise, said Rohinton Sidhwa, a partner at Deloitte India. There’s a lot of avoidable tax litigation which benefits neither the department nor the taxpayer, he told BloombergQuint.
Agreed Rani Singh Nair, former chairperson of Central Board of Direct Taxes. She said the Central Board of Direct Taxes lays down targets for collecting outstanding demand every year. Collection from arrears demand is always a challenge as either the demand is locked in appeal or not covered by adequate assets, and in some cases taxpayers not traceable, Nair told BloombergQuint.
Recovery of arrears is a priority as it’s mounting every year, she said. “Efforts can be made by getting tax appeals expedited, identifying the assets that can be attached towards arrears, and going forward, people who owe large amounts of undisputed government taxes shouldn’t be made eligible for loans.”
Slowing Corporate Tax Growth
Slowing economic growth, which fell to a six-year low in the quarter ended June, has dragged corporate tax collections, with mop-up from companies remaining little changed over last year. The collections, as on Sept. 28, was Rs 2.46 lakh crore compared with Rs 2.43 lakh crore realised till the same date in 2018, the two officials cited earlier said.
The government last month announced India’s biggest corporate tax rate cut in two decades, by introducing a new 22 percent rate versus the prevailing 30 percent (not including cess and surcharge) as well as a 15 percent rate for new manufacturing companies. The new rates are subject to conditions. The government estimates a revenue loss of almost Rs 1.45 lakh crore due to the new rates.
The government, however, doesn’t expect all companies to avail the lower tax benefit immediately, as they then wouldn’t be able to avail existing exemptions or incentives, nor claim minimum alternate tax credit nor set off losses on account of additional depreciation, the first official cited earlier said.
Companies would consider various aspects like years left for the tax holiday to expire, the amount of tax incentive still available or the MAT credit before availing the new reduced rates, Sidhwa from Deloitte said.