Sub Heading : Economists say duty cuts, slowdown, poor markets and lower consumption will crimp tax receipts
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Rising tax collections in the last four years and expectations that more people will pay taxes this year have spurred the government to hike its tax collection target for 2008-09.
But not everyone is convinced people are generating higher income.
India’s tax collections in the current fiscal may exceed the government target of Rs 3.65 lakh crore, as more people are voluntarily complying and paying their dues, finance minister P Chidambaram said on Monday.
“I have asked the Central Board of Direct Taxes to quickly revise upward the estimate (of collections),” Chidambaram told reporters in New Delhi.
The government had collected Rs 3.14 lakh crore through taxes in the previous fiscal year that ended March 31, 2008.
Ministry officials are also confident of meeting the government’s stiff target on the basis of recent experience and early tax indications.
“Tax collections have grown by between 25% and 37% each year in the last four fiscal years. Even if the government takes the conservative estimate of a 25% growth this year, the tax collections will be about 3.93 lakh crore based on last year’s actual collections of Rs 3.14 lakh crore,” said a finance ministry official.
It is possible to achieve a target of about Rs 4 lakh crore tax collections in the current fiscal year as the compliance levels have improved, the official added.
“The three indicators, namely, tax deducted at source (TDS), advance tax—both corporations and smaller businesses—and self assessment of income have indicated increased tax collections in this fiscal year,” he said.
However, economists are not too upbeat about the government revenue collections this year.
They point out that this year unlike the previous years the government is in an unfamiliar situation because of forceful duty cuts due to high inflation and an expected slowdown in growth, both of which are likely to bring down revenue.
Besides, expenses are also likely to increase particularly in 2008-09 because of the one-off farm loan waiver and possible increase in salaries of government employees because of the implementation of the sixth pay commission report.
Manas Paul, assistant vice president, global banking & markets - research (economics), HSBC, points out that his bank has already forecasted that fiscal deficit at 3.5% would be higher than the 2.5% targeted this year.
“A couple of things like the pay commission and the farm loan waiver will dent the targets and obviously revenue lost due to import duty cuts will also have an impact. And with oil prices rising, fertiliser costs will also go up. Also, with the expected slowdown in growth, corporate taxes will be lower. So there could be a problem on the fiscal balance,” Paul said.
Paul said other things such as the increase in the minimum support price for wheat and rice and the fact that despite the recent hike in domestic fuel prices the full impact of the global oil price rise has not been passed on in India means that revenue needs are higher this year.
“There is pressure on spending and the government will go all out to plug all the loopholes in tax collection. They will have to strive towards increasing efficiency in tax collection,” he said.
Abheek Barua, chief economist at HDFC Bank, estimates that the government could conservatively lose around Rs 40,000-50,000 crore of revenue because of cuts in duties of edible oil, excise, customs and steel.
He expects the government to try harder to increase tax collections this year.
Though the government has imposed export duties on items like agricultural products and steel, that will not suffice to offset the total losses arising out of other duty cuts, said a New Delhi-based corporate tax consultant, requesting anonymity.
“Reduction of duties on oil alone is huge. Further, there could be some more reductions ahead in a bid to check inflation. The excise duty cuts alone will have the revenue reduced substantially by Rs 20,000 crore,” the consultant said.
“If the government does not want the fiscal deficit to widen considerably beyond the 2.5% targeted for the year the tax collection efficiency has to improve. So there will be a drive to increase collections which may also mean an increase in I-T raids to increase compliance because it is widely believed that though tax collections have improved, they remain sluggish despite significant improvements such as computerisation,” HDFC Bank’s Barua said.
The finance ministry, however, doesn’t seem to be keen on increasing income raids, as it wants more of voluntary compliance.
“There will be no coercive action. In fact, the finance minister has asked the income tax officials to find ways and means to encourage taxpayers to comply voluntarily with the law,” a finance ministry official said.
The tax consultant also feels there is a scope of improving collections without coercive measures.
“All the tax collections this year pertain to the income earned in the last fiscal year. The government can ask various tribunals to speed up the pending litigations pertaining tax disputes, and hence earn substantial revenue,” said the consultant.
But not everyone is convinced people are generating higher income.
India’s tax collections in the current fiscal may exceed the government target of Rs 3.65 lakh crore, as more people are voluntarily complying and paying their dues, finance minister P Chidambaram said on Monday.
“I have asked the Central Board of Direct Taxes to quickly revise upward the estimate (of collections),” Chidambaram told reporters in New Delhi.
The government had collected Rs 3.14 lakh crore through taxes in the previous fiscal year that ended March 31, 2008.
Ministry officials are also confident of meeting the government’s stiff target on the basis of recent experience and early tax indications.
“Tax collections have grown by between 25% and 37% each year in the last four fiscal years. Even if the government takes the conservative estimate of a 25% growth this year, the tax collections will be about 3.93 lakh crore based on last year’s actual collections of Rs 3.14 lakh crore,” said a finance ministry official.
It is possible to achieve a target of about Rs 4 lakh crore tax collections in the current fiscal year as the compliance levels have improved, the official added.
“The three indicators, namely, tax deducted at source (TDS), advance tax—both corporations and smaller businesses—and self assessment of income have indicated increased tax collections in this fiscal year,” he said.
However, economists are not too upbeat about the government revenue collections this year.
They point out that this year unlike the previous years the government is in an unfamiliar situation because of forceful duty cuts due to high inflation and an expected slowdown in growth, both of which are likely to bring down revenue.
Besides, expenses are also likely to increase particularly in 2008-09 because of the one-off farm loan waiver and possible increase in salaries of government employees because of the implementation of the sixth pay commission report.
Manas Paul, assistant vice president, global banking & markets - research (economics), HSBC, points out that his bank has already forecasted that fiscal deficit at 3.5% would be higher than the 2.5% targeted this year.
“A couple of things like the pay commission and the farm loan waiver will dent the targets and obviously revenue lost due to import duty cuts will also have an impact. And with oil prices rising, fertiliser costs will also go up. Also, with the expected slowdown in growth, corporate taxes will be lower. So there could be a problem on the fiscal balance,” Paul said.
Paul said other things such as the increase in the minimum support price for wheat and rice and the fact that despite the recent hike in domestic fuel prices the full impact of the global oil price rise has not been passed on in India means that revenue needs are higher this year.
“There is pressure on spending and the government will go all out to plug all the loopholes in tax collection. They will have to strive towards increasing efficiency in tax collection,” he said.
Abheek Barua, chief economist at HDFC Bank, estimates that the government could conservatively lose around Rs 40,000-50,000 crore of revenue because of cuts in duties of edible oil, excise, customs and steel.
He expects the government to try harder to increase tax collections this year.
Though the government has imposed export duties on items like agricultural products and steel, that will not suffice to offset the total losses arising out of other duty cuts, said a New Delhi-based corporate tax consultant, requesting anonymity.
“Reduction of duties on oil alone is huge. Further, there could be some more reductions ahead in a bid to check inflation. The excise duty cuts alone will have the revenue reduced substantially by Rs 20,000 crore,” the consultant said.
“If the government does not want the fiscal deficit to widen considerably beyond the 2.5% targeted for the year the tax collection efficiency has to improve. So there will be a drive to increase collections which may also mean an increase in I-T raids to increase compliance because it is widely believed that though tax collections have improved, they remain sluggish despite significant improvements such as computerisation,” HDFC Bank’s Barua said.
The finance ministry, however, doesn’t seem to be keen on increasing income raids, as it wants more of voluntary compliance.
“There will be no coercive action. In fact, the finance minister has asked the income tax officials to find ways and means to encourage taxpayers to comply voluntarily with the law,” a finance ministry official said.
The tax consultant also feels there is a scope of improving collections without coercive measures.
“All the tax collections this year pertain to the income earned in the last fiscal year. The government can ask various tribunals to speed up the pending litigations pertaining tax disputes, and hence earn substantial revenue,” said the consultant.
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