Revenue secretary Shaktikanta Das speaks to Gireesh Chandra Prasad and KG Narendranath on the subdued revenue productivity in recent years, tax evasion, the proposed Goods and Services Tax, etc. in an exclusive interview. Edited excerpts:
The projections of tax revenue for 2015-16 may have looked less rosy than in the past two years which saw revenue productivity taking a big hit and ultra-optimistic estimates inevitably going awry. Yet, a 15.8% growth in overall tax collections could still prove to be an over-estimate.
Recent revenue buoyancy doesn’t justify the estimate, based on an estimated (and also disputed) nominal GDP growth of 11.5%.
The revised estimate of overall growth in tax revenue for 2014-15 is about 10% over last year’s actual collections. For 2015-16, 16% growth is seen. To dis-aggregate that estimate, in direct taxes, the current year’s revised estimate shows a growth rate of 10.5% and for 2015-16, a 13% growth over that is seen. This indeed is very reasonable, given the economic growth rate expected.
As far as indirect taxes are concerned, the growth recorded for 2014-15 is in the range of 9% and for the next fiscal, growth of 19.5% has been projected. Of course, it looks a bit high, but certain Budget decisions would come to our help.
Service tax rate, for example, has been raised to 14% and the ambit of this tax has been widened. The coal cess, which has been increased from Rs 100 to Rs 200 per tonne, is expected to result in extra Rs 6,000 crore revenue. The excise duty concessions for automobiles and capital goods existed for the nine months till December 2014. However, the notified excise duty rates will apply to these items for the entire year, that is 2015-16. The combined impact of these and other measures (in the indirect taxes space) is going to be incremental revenue of Rs 70,000 crore or thereabouts. We therefore assume the tax revenue estimates are realistic.
Slippage in revenue growth (tax-GDP ratio has slipped from 11.9% in 2007-08 to 9.9% in 2014-15) is what impacted the Budget numbers, though in an adverse manner. Given that a major improvement in (economic) growth-induced tax buoyancy cannot happen overnight, the Budget should have contained provisions to capture the black economy for taxation.
Normally, we do not spell out in the Budget the administrative measures taken to tax the sectors and entities that evade tax. In fact, we have taken many such measures in the last nine months: the highest number of raids and searches, prosecutions and seizures of cash.
Simultaneously, systemic improvements are helping us capture the black economy. We are making good use of annual information reports from reporting entities like banks, stock brokers etc. and the information furnished by the Financial Intelligence Unit (FIU). In his Budget speech, finance minister Arun Jaitley said both the CBDT and CBEC will be sharing data online. I hold regular meetings of the investigation wing of CBDT, the Central Excise Intelligence Wing, the DRI, FIU and the Enforcement Directorate (with a view to strategising against/acting upon tax evaders).
In 2007-08, when (real) economic growth was above 9% and all other macroeconomic indicators looked promising, the tax-GDP ratio peaked at 11.9%. Once exemptions go and GST is ushered in, the tax buoyancy will again improve significantly.
The tax arrears keep rising. What are you going to do about it?
Wherever tax defaulters have assets, we attach and auction them to realise the dues. In many cases, defaulters do not have assets. The names of defaulters are now available on the I-T department’s website and anyone with information about the defaulter’s assets can bring the same to our notice. Wherever the outstanding amounts of tax are recoverable, due action is being taken, even as we go through a due (time-consuming) process.
Have you identified the tax incentives that would be withdrawn (in case of corporate tax, the rate of which is slated to be reduced in phases to 25% from 30% now over four years starting 2016-17) and finalised a time-table?
A lot of work has been done internally on this. We will take into account both the legality of the withdrawal of exemptions and the concept of policy stability while taking decisions. If someone is assured of some incentive for five years, withdrawing it in three years will pose an issue of policy stability.
There are terminal dates for most of the direct tax exemptions and deductions in the law itself. What are the sectors and geographies where you can introduce new end dates for tax breaks?
That is the matter currently under examination. It is our endeavour to announce the road map for phasing out exemptions during 2015-16 itself. As regards indirect taxes, most of the exemptions from excise duty and service tax will cease to exist when GST is introduced.
What can ideally be a revenue neutral rate (RNR) for GST?
A team is reworking the RNR. The central excise and service tax rate applicable before the 2015-16 Budget was 12%. The VAT rate (of majority of items) in most states is 14%. That calls for an RNR of 26%. Earlier, it was assumed that petroleum and petroleum products would also be part of GST from the very beginning. The current thinking is that even as constitutionally these items will be subject to GST, the actual levy will start from a date to be notified. Also, we have allowed a 1% origin based tax on inter-state supply of goods for two years, which will also give (manufacturing) states some additional revenue. (This will compensate for any revenue loss in the GST regime, where proceeds of Integrated GST on cross-border trade will go the consuming state against the current practice of its equivalent — central sales tax — going to the exporting state.) The GST Council chaired by the Union finance minister and state finance ministers will have the final say on what the RNR will be.
We cannot pre-judge the GST rate at this juncture. In any case, the GST rate has to be around the actual RNR.
The government has been awaiting a clarification from the Supreme Court (SC) on whether India can sign tax treaties with confidentiality clauses. As you know, without clarity on this we cannot sign the inter-government agreement on FATCA with the US.
The SC had referred the matter of confidentiality clause in tax treaties to the special investigation team (SIT) on black money. The apex court directed us to explain our difficulties to the SIT. The SIT has dealt with this issue in its latest report to the SC. Based on that report, we are going forward. We expect to sign the inter-government agreement under FATCA in March itself.