High tax collection targets have led to heavy refunds with high interest outgo. Instead of setting up inflated targets, the government must widen the tax base in such a manner that there is a substantial increase in the number of assesses in the middle income category, where tax evasion is high.
High tax targets also put pressure on the income tax department and the number of litigations is also rising. The number of cases filed before the tribunals and courts is high and the success rate in low. In FY13, total number of direct tax disputes pending in various courts were close to 2.7 lakh and the number for indirect taxes was 1.13 lakh. There were more than 733 direct tax cases pending in high courts for more than ten years and the success rate of the department at each level is lower than that for the taxpayer. Mumbai accounts for most of the tax disputes in the country followed by Delhi and Pune.
A report of the Standing Committee on Finance says the number of appeals decided against the department before the Income Tax Appellate Tribunal (ITAT) as 53% in FY14. The appeals filed by the department in high courts and decided against the department were 61% and for Supreme Court it was 60%. In the budget for FY16, the finance minister is now expected to project realistic tax targets and put in place a non-adversarial tax system.