As fears spread over the impact of a slowdown in some sectors of the economy on the exchequer, the responsibility of keeping direct tax collections flowing into government coffers is on the shoulders of Prakash Chandra, who took over as the chairman of the Central Board of Direct Taxes (CBDT) earlier this month, albeit for two months only.
As the pressure increased, Chandra said that negotiations to revise the Double Taxation Avoidance Agreement (DTAA) with Mauritius include a demand from New Delhi to tax capital gains tax in India on investments made from Mauritius. The remarks led to a bloodbath in the stock markets on Monday.
A 1973 batch IRS officer, Chandra did say that India will demand such a tax while negotiating the treaty, but never said Mauritius had accepted the demand. He merely said Mauritius is willing to have a fresh look at the DTAA.
The development should be seen in the context of the CBDT chairman's responsibility to garner tax revenues for the government.
Gross direct tax collections until June 18 were over Rs one lakh crore, which represents a 23 per cent year-on-year growth. Chandra is confident that the target for direct tax collection for the entire year, at over Rs 5.32 lakh crore, will not only be met, but will be exceeded as well.
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However, the huge refunds, at Rs 40,797 crore, which are 190 per cent more than a year ago, led to flat net collections at Rs over 60,000 crore compared to year-ago figures.
Such high refunds also led to some differences between the budget and tax departments in the finance ministry. The budget department wants the tax department to keep it in the loop whenever it has to give such huge tax refunds, so that the former can better manage the government’s cash flows.
Because of these refunds, the government had to borrow more through short-term treasury bills and cash management bills.
Chandra also heads a committee constituted by the government to examine ways to strengthen laws for curbing the generation of black money in the country.