Govt looks at higher direct tax collection to tackle revenue collection crisis
Top officers in the tax department say they have been asked to ensure additional collection of at least Rs20,000 crore this financial year.business Updated: Jan 03, 2018 16:43 IST
Pressure is mounting on the direct tax department to exceed its tax collection target, as doubts about revenue receipts grow larger, government and tax officials familiar with the matter said on condition of anonymity.
Top officers in the tax department say they have been asked to ensure additional collection of at least Rs20,000 crore this financial year. The target for personal and corporate tax receipts was set at Rs9.8 lakh crore for 2017-18.
“Since compliance is in focus, the expectation is that the collection will also increase. First, the direct tax target was revised upwards to Rs10 lakh crore from Rs9.8 lakh crore, and now the direction is to increase it as much as possible even beyond the additional Rs20,000 crore,” said one of the tax officers.
The demand comes at a time when questions are being asked about the amount of Goods and Services Tax that will come in this year; collection of GST has dipped for two consecutive months since October, and, anyway, this year was expected to see only 11 months of GST revenue.
“The government’s balance sheet is under pressure. A Rs27,300 crore of shortfall from RBI’s dividend, Rs13,000 crore of shortfall due to excise duty cuts (petroleum products), Rs40,000 crore likely slippage on account of GST and Rs14,500 crore shortfall in spectrum revenue receipt,” said Abheek Barua, chief economist, HDFC Bank.
At Rs80,808 crore for November, GST collection is at its lowest since its implementation in July 2017. Most believe that the reduction in rates of about 200 items in November and lower compliance is the reason.
Government data shows that of 9.9 million registered tax payers, 5.3 million paid GST.
“This year there is definitely a challenge to meet the indirect tax target, especially since a growth of 20% over last year’s collection was predicted. For the government to offset the effect of reduced GST rates and lenient implementation, compliance and volume has to shoot up. And volume will pick up only when growth picks up and the economy responds to the rate reduction,” said R Muralidharan, senior director, Deloitte India.
The target for GST and customs duty is Rs9.68 lakh crore this year. There has been an increase in the latter given higher imports of electronic goods including phones, but that may not help.
“Customs duty forms only a minuscule percentage of indirect tax collections and it has been muted in the last few months not to forget that the government will also lose about Rs13,000 crore due to the Rs2/litre cut on excise duty on petro products,” added Muralidharan.
The government effected that cut in October to ensure there was no rise in the retail price of fuel.
There are some positive developments on the revenue front too.
The government is hoping the fall in GST will be offset by an increase in direct tax (receipts rose 14.4% in the eight months to November 30), and higher proceeds from disinvestment.
Government officials said they are likely to substantially exceed the disinvestment target of Rs72,500 crore for 2017-18. The proceeds from selling government holding in public companies already stands at Rs52,500 crore. To this amount, the Rs30,000 crore that the merger of ONGC and HPCL will garner will be added, as will the amount that will come from sales of Bharat 22 ETF, an exchange traded fund created by the government to allow retail investors to buy equity in state-owned companies. All told, the amount could exceed Rs90,000 crore the officials said.
“Looking at investor interest, we are considering a second tranche for Bharat 22 ETF in this fiscal,” said a government official who did not wish to be named.
Launched in November , the issue size of the Bharat 22 ETF was Rs14,500 crore.
The government has also pinned its hopes on special dividends from state-owned firms, amounting to around Rs25,000 crore, the officials added.