Direct tax officials seek cut in collection target

Slide in investment raises fears of lower mop up of direct tax this financial year

The Centre, struggling to rein in its fiscal deficit at 3.2 per cent of gross domestic product (GDP), faces worries on the direct taxes front too.

The Central Board of Direct Taxes (CBDT) has asked for a lower collection target than that given in the Budget Estimates this financial year, owing to subdued economic activity.

Continued weakness in investment was expected to impact corporation tax collections, prompting the department to seek a lowering of the steep target of Rs 9.8 lakh crore, 15.7 per cent higher than last year’s collection, said sources. The department has asked for a reduction of close to Rs 20,000 crore in the target. 

“We have asked for a reduction in the direct tax collection target,” said a government official. “It was a very high one to begin with. The current growth rate is not bad, but the road may get tougher if the economy and investments do not pick up significantly. But we will need to see whether the government finally agrees to it.” 

A downward revision would reflect in the revised estimates of the current year. This might compound the Centre’s revenue worries, with the goods and services tax (GST) collections yet to stabilise and the fiscal deficit touching 96 per cent of the Budget target by October. 

“We do not want to block any refunds. Therefore, it is better we have a realistic target in the first place. Officers may then even resort to unfair means to meet the target. Hence, it must be reduced,” said another official. 

Last year, the CBDT had protested against a proposal to increase the target in the revised estimate. 

Growth in advance tax collections slowed to 11 per cent in the first half of the financial year, against 14 per cent a year ago, posing a challenge to the government’s tax collection target for the year. However, the collections have maintained pace with the direct tax mop-up, which is up 15.2 per cent at Rs 4.39 lakh crore in April-October. 

In September, CBDT Chairman Sushil Chandra had asked field officials to scrutinise entities or companies that reported more than 10 per cent lower tax-deducted-at-source (TDS) payment in the first half of the current fiscal year. TDS growth in the first half was around 10.44 per cent, against 17 per cent reported in the year-ago period. 

About 45 per cent of direct tax revenue collection comes from advance tax, 35 per cent from TDS, 10 per cent from self-assessment and 10 per cent from recovery. 

India’s gross domestic product (GDP) rose 6.3 per cent in the quarter ended September (5.7 per cent in the previous quarter). While investment grew 4.6 per cent in Q2, against 1.6 per cent in the first quarter on a year-on-year basis, its share in GDP fell to 28.9 per cent from 29.9 per cent in Q1, indicating GST-related stress. 

The income-tax rate on income between Rs 2.5 lakh and Rs 5 lakh was cut to 5 per cent in the current year from 10 per cent.

Incidentally, Chandra had last month expressed confidence of exceeding the collection target for the fiscal year. 

The fiscal deficit has touched 6.3 per cent of GDP in the first half of the financial year, primarily due to front-loading of expenditures. Nominal GDP grew 9.3 per cent in the first half of 2017-18. The Budget had assumed growth of 11.75 per cent  in GDP for the current financial year. Any lower growth in nominal GDP would make the target of reining in the fiscal deficit at 3.2 per cent more difficult. 

GST revenue in October slipped to Rs 83,346 crore, the lowest since the implementation of the tax. It is expected to slip further due to the impact of reduction in the rates of about 200 items. 

The low collection was attributed to the utilisation of collected Integrated GST (IGST) as credit against Central GST (CGST) and State GST (SGST), lower tax incidence on items in the GST regime and unstable tax compliance. The government said tax compliance might not have been up to the mark on account of deferment of implementation of some of the main features of the GST such as, matching of returns, e-way bill and reverse charge mechanism. 

Lower revenue realisation and rise in expenditure led to the fiscal deficit touching 96 per cent of the full year target.