Editorial: Not by fiat

Mar 26 2014, 02:23 IST
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SummaryAt some point, tax targets have to be realistic

Given that the last week of FY13 saw R40,000 crore of direct tax collections, it may just be possible for the government to mop up FY14’s direct tax shortfall of R46,000 crore. So far, direct tax collections seem to be on track—though, only in relation to the revised budget targets, not the original ones. In the case of personal income taxes, while the revised target for the year envisages a 19.9% growth, tax collections in April-January FY14 rose 21.3%. In the case of corporate taxes, the revised estimate required collections to rise 10.5%, not too different from the 10.6% in April-January. These numbers, though, need to be discounted since there is more than a little coercion in the last minute collections—it is not unknown for taxmen to lean on assessees to collect taxes, if only to refund them later. While direct tax refunds added up to R84,993 crore till March 22, they were around R80,729 crore last year.

The real challenge for the taxman, of course, will be on the indirect tax side that still contributes around 45% of total collections. In the case of excise duties, thanks to manufacturing contracting 0.5% in 10 months of FY14, April-January collections contracted 5.2% versus even the modest 1.7% growth target in the revised estimates—excise duties comprise around a seventh of all tax collections. Customs duty collections are roughly on par—they grew 4.7% in April-January versus a 5.9% revised target for the year. Service taxes grew at just 19.1% in April-January versus the revised 24.4%, again not surprising given that services growth in the 9 months of the year was a mere 6.8%.

None of the shortfalls are really the taxman’s fault. In the year’s original target of R4,19,520 crore for corporate tax collections, for instance, there would have been a component for tax collections from Vodafone and the like who are being taxed under the retrospective tax amendment. While the finance minister’s dictum of your grasp being more than your reach is a good motivational policy, it does cause a problem when, year after year, budget targets are missed by a wide margin. In FY14, the original budgeted amount was R12,35,870 crore, or a 19.3% hike over FY13—the revised target envisages a lower 11.8% growth and even that is in danger of getting breached. Given this year’s revised tax collections growth is just 11.8%, FY15’s 19% target—with the economy not growing much faster—means a

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