The Rs 50,000-crore challenge

Raising the corporation tax collection target by 8 per cent in February may have made the CBDT's task more difficult

As many as five associations of chartered accountants are reported to have sent an appeal to the prime minister and the finance minister. The appeal is to request the two leaders to impress upon the Central Board of Direct Taxes (CBDT) the need to avoid exerting undue pressure on taxpayers in its bid to meet the annual direct taxes collection target for 2018-19. 

Such an appeal is unusual. What prompted these associations of chartered accountants to plead with the prime minister was an internal circular issued by the CBDT on March 26 to its senior income-tax officers asking them to intensify efforts at collecting taxes and securing recovery of arrears. The chartered accountants, obviously, fear that the internal note could result in harassment of taxpayers. 

What was the need for the CBDT to send a circular of this nature to the income-tax officers on March 26, just about five days before the end of the 2018-19 financial year? As on that date, the CBDT had managed to collect about Rs 10.29 trillion of direct taxes, against the revised target of Rs 12 trillion. In other words, it had to collect another Rs 1.71 trillion in just about five days remaining in the financial year.

An internal estimate suggested that the CBDT could manage to mobilise Rs 1.2 trillion in those five days, leaving a shortfall of about Rs 50,000 crore. The idea of the circular was to make sure that the shortfall was further reduced and the revised target of Rs 12 trillion met. Hence, there were genuine concerns over the taxman becoming aggressive and the chartered accountants were only pleading for some relief. 

On the other hand, a variety of factors could be responsible for the CBDT facing difficulty in meeting the target. Prospects of lower earnings could be one of them. A slowdown in the collection of tax deducted at source could be another. Yet another reason could be a decline in the recovery of arrears. Hence, the circular had asked the income-tax officers to step up efforts at securing recovery of arrears and early deposits of taxes deducted at source. 

However, all these factors would have been less of a challenge had the government not raised its direct taxes collection target by Rs 50,000 crore while presenting the revised estimates in the interim Budget on February 1, 2019. The original target for direct taxes was Rs 11.5 trillion for 2018-19 — Rs 6.21 trillion from corporation tax and Rs 5.29 trillion from individual income tax. But the revised estimates raised the target to Rs 12 trillion. The onus of the increased tax collection fell entirely on the corporation tax. This is also one of the reasons why chartered accountants sent out that appeal as they were presumably representing a host of companies, which might now be under greater scrutiny of the taxman.

The need to meet the fiscal deficit target was surely the main trigger for raising the revised estimate for direct tax collections. But was the CBDT fully on board in revising upwards the corporation tax collection target? In the last five years, the corporation tax collection target was raised only twice — by Rs 25,000 crore in 2017-18 and by Rs 50,000 crore in 2018-19. In all the previous three years, the revised target for corporation tax was either reduced or kept unchanged. 

Sushil Chandra was the CBDT chairman when the interim Budget was presented on February 1 with the higher direct tax collection target. Chandra, a 1980-batch Indian Revenue Service (IRS) officer, had a reasonably long tenure as the CBDT chairman. He took charge of that key department on November 1, 2016 and got two extensions. In the normal course, his extended tenure would have ended on May 31, 2019. It is possible that given his long tenure and the success in exceeding the corporation tax collection target in 2017-18, he may have agreed to take on the challenge of meeting a higher target once again for 2018-19. 

However, on February 14, just two weeks after the interim Budget, Chandra was appointed as the Election Commissioner. And a day later, Pramod Chandra Mody, a 1982-batch IRS officer working as a Member of CBDT, was appointed to succeed Chandra as its Chairman. And Mody, in the normal course, would complete his term in June 2019. 

Would it have made more sense if Chandra were allowed to continue to function as the CBDT chairman for a few more weeks and steer the direct tax collection efforts to meet a higher target? Or were there other considerations at work?