Revenue secretary seems to suggest a DeMo amnesty which is wrong & tax collections could also fall short again.
On the face of things, the Vivad se Vishwas tax-dispute-resolution-cum-amnesty scheme is a good one. Modeled along with a similar one for indirect taxes, this scheme targets around Rs 8 lakh crore of disputed direct taxes—roughly half each for individuals and corporates—and involves around five lakh individuals. Anything that allows people to settle their disputes and move on is a great idea; more so if it gives the government additional revenues. But, there are two serious issues with the scheme. For one, the revenue secretary has told one newspaper that even those caught in the taxman’s crosshairs for depositing unexplained sums of cash in the bank after demonetisation can use the scheme. So, for instance, if a jeweler reported a turnover of Rs 1 crore in the previous year, but then deposited Rs 10 crore after demonetisation, he can pay a tax and move on; there is no need to pay the penalty and interest on this. It is not clear how the amnesty is to be used since these people have not even been given tax demands so far; they have just been asked for an explanation for the deposits. But, if these people are to be allowed to use the scheme, it is completely unfair to the honest taxpayer.
They were given two amnesty schemes by the Modi government alone, but still didn’t come clean; now that they are on the verge of getting caught, they will be allowed to get away. This sends a signal that the honest taxpayer is stupid to have been paying her taxes all these years. The second problem is the clean chit the taxman is getting. In the past, the taxman was accused of tax-terror, of issuing high tax demands that were not warranted. So, if taxpayers use the scheme to pay the tax—but not the penalty and the interest on it—because they don’t want to litigate for years on end, the taxman’s perfidy goes unchecked. This newspaper has been arguing, for a long time, for the government to examine tax demands itself and see which are extortionary, and scrap these, apart from taking action against the taxmen who were responsible. Sadly, nothing of the sort happened.
An additional problem the government could face relates to the possibility that it may, once again, have to mark down its tax estimates; the revised estimates for FY20 are Rs 21.6 lakh crore versus the budget estimates of Rs 24.6 lakh crore. While the new estimate is a 4% hike in taxes for FY20, the actual collections between April-December fell 2.9%, year-on-year (y-o-y). This makes the asking rate assumed for the last quarter very ambitious.
Nearly 43% of the personal income tax collection target or Rs 2.42 lakh crore needs to be collected in three months; PIT collections were up just 5.7% y-o-y with April to December collections at Rs 3.17 lakh crore. It is true that a high share of taxes are collected in the last quarter, but a 43% growth is a tough task. In the case of corporate taxes, following the cut in the rates to 22% from 30% last September, the collection in corporation taxes plunged 13.6% y-o-y between April and December. In all, direct tax collections, at Rs 6.98 lakh crore were down 5.7% y-o-y in the first nine months of 2019-20.
Given how the economy remains sluggish, this trend is unlikely to reverse in the near term. As for indirect taxes, the current GST collection of Rs 9.06 lakh crore—in nine months—might not be good enough to meet the projected Rs 12.76 lakh crore. Moreover, given the weak consumption trends—private consumption has been steadily decelerating—the target for excise duties as also customs levies could be missed. Some of this, though, could be made up if individuals and companies come forward to pay their liabilities under the Vivad se Vishwas scheme. If not, it will also need to rework the FY21 tax targets since they will then become even steeper than they are right now.