The estimated revenue forgone due to customs duty exemptions in 2007-08 is Rs 1,48,252 crore, an 8% increase over the previous year?s estimated figure of Rs 1,37,105 crore.

Whereas, on account of excise duty exemptions, the estimated revenue foregone in 2007-08 is Rs 87,992 crore, up by 16.5% over the revised (provisional) figure of Rs 75,475 crore in 2006-07. However, the estimate for 2006-07 was Rs 99,690 crore. Of the Rs 87,992 crore, area based exemptions applicable in north-east states, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, and Kutch district of Gujarat accounted for Rs 8,550 crore. Similar figures in 2006-07 were Rs 7,000 crore.

Estimated revenue foregone due to export promotion concessions in 2007-08 increased 10.8% to Rs 61,046 crore, from Rs 55,072 crore in the previous year.

The revenue loss due to concessions given to Special Economic Zones (SEZ), Export Oriented Units (EOU), Software Technology Parks (STP) and Electronic Hardware Technology Parks (EHTP) in 2007-08 is Rs 26,768 crore, a 61.4% oncrease over 2006-07 provisional figures of Rs 16,580 crore.

In 2007-08, the revenue foregone for EOU/STP/ EHTP scheme alone comprised Rs 23,806 crore, up 65.4% from Rs 14,386 crore in the previous year, while that for SEZs went up marginally by 35% to Rs 2,962 crore in 2007-08 from Rs 2,194 crore in 2006-07. The finance ministry has admitted that the amount of revenue foregone has shown an increasing trend. It also said that as a percentage of aggregate tax collection, the revenue foregone stayed high, though a declining tend was noticeable. The ministry said this trend reflects the success of reforms, including moderate tax rates and base expansion, undertaken by the government in the last four years.

S Madhavan, leader, indirect tax practice, PricewaterhouseCoopers, said: ?I expect the revenue foregone component to come down after the commencement of goods and services tax (GST) from April 2010. Also, exports of goods and services, including from SEZs, should not be charged with taxes as it will affect the export sector?s competitiveness. Besides, they will be zero-rated under GST.?

The item which contributed maximum to the revenue foregone due to customs duty exemption was jewellery & precious stones, with Rs 35,182 crore in 2007-08, up 37% from Rs 25,672 crore in 2006-07. This was followed by mineral fruits & mineral oils, accounting for Rs 22,007 crore in 2007-08, down 11.6% from Rs 24,895 crore in 2006-07. The other top products were machinery which accounted for Rs 13,630 crore in 2007-08 from Rs 15,081 crore in the previous year. The share of special woven fabrics fell from Rs 2,047 crore in 2006-07 to Rs 475 crore in 2007-08.

DIRECT TAX

fe Bureau

The estimated revenue forgone by the government on account of direct taxes has increased by almost 31% this year. Government has estimated its revenue loss at Rs 1,00,816 crore in 2008-09, up from Rs 77,177 crore in the previous year. This revenue loss, or tax expenditure is a result of various exemptions and tax subsidies given by the government to the corporate sector as well as individuals.

The massive increase in revenue forgone is also significant since the government has been trying to minimise exemptions.

While the revenue forgone on account of the corporate sector rose from Rs 45,034 crore in 2006-07 to Rs 58,655 crore in 2007-08, it increased to Rs 38,107 crore from Rs 29,130 crore on account of individual taxpayers. The effective tax rate for the corporate turned out be 20.60% in 2006-07, marginally higher than 19.26% in 2005-06, which was substantially lower than the statutory tax rate of 33.66%. The government data also shows that the tax liability across companies is unevenly distributed due to exemptions. While effective tax rate of almost all the industries is below the statutory level, it is the lowest for the IT enabled services providers & BPO service providers and software development agencies at 7.36% and 6.38%, respectively. These two industries contributed 6.18% of the total corporate profits but only 2.08% of the total taxes.

The tax foregone on each tax sop has been calculated by applying the corporate tax rate of 33.66% on the amount of each deduction.

The Income-tax department received 3,28,061 corporate returns electronically up to 31st December, 2007 for the financial year 2006-07. These returns constitute about 90% of the total corporate returns expected in financial year 2007-08.

The revenue forgone for the corporate sector could be even higher since the government data constituted of only 90% of the total companies. Notably, the revenue foregone due to accelerated depreciation rose from just Rs. 641 crore in 2005-06 to Rs. 7,396 crore in 2006-07. The Receipts Budget says that this sharp increase could be seen as an indicator of higher new investment made by companies during the year.

Apart from the corporate sector, revenue forgone on account of non-corporate sector?comprising of partnership firms and Association of Persons or Body of Individuals ? increased to Rs 4054 crore in 2007-08 from Rs 3013 crore in 2006-07. The effective tax rate in case of the non-corporate sector works out to 22.99%.

Revenue loss from individual taxpayers rose to Rs 38,107 crore in 2007-08 from Rs 29,130 crore in the previous year. Out of this, a substantial portion of the revenue (Rs 29,647 crore in 2007-08) has been forgone due to exemptions of certain investments and other payments under section 80 C. A revenue foregone or a tax expenditure statement was laid before Parliament for the first time during Budget 2006-07.