The tussle between two finance ministry departments over the issue of tax refunds has been resolved, with the revenue department agreeing to inform the economic affairs department about the likely refund outgo on a weekly basis.
The government’s borrowing is conducted on a weekly basis and the tax department has started giving estimates of refunds for each week.
This has been done to avoid a situation where there is a mismatch between the government’s cash balance and expenditure.
Due to a refund drive started by the revenue department, the government had to raise Rs 32,000 crore in April through cash management bills, which have a maturity of less than 91 days and are used to handle government’s temporary cash flow mismatch. The quantity of treasury bills with a maturity of up to 362 days also increased, as refunds to the tune of Rs 28,000 crore were given during the month.
The pace of refunds given by the tax department has slowed in the past two months. Refunds amounting to Rs 12,000 crore and about Rs 7,000 crore were issued in May and June, respectively.
Finance ministry officials say the moderation was not deliberate and there was no intention to hold back taxpayers’ money to deal with government’s cash management issues.
They said a substantial chunk of the refunds due had been issued and fewer would be issued in the coming months. The tax department may give another Rs 70,000-75,000 crore during the rest of the year, taking the total to a little over Rs 1,00,000 crore this year.
Of about Rs 47,000 crore of refunds issued in the April-June quarter this year, Rs 37,000 crore has been issued to corporate tax payers, while about Rs 10,000 crore has gone to personal income tax payers. It had given a refund of about Rs 15,000 crore in the same quarter a year before, an increase of 205 per cent.
The government would have frontloaded a bigger part of its borrowing requirements in the first half of the financial year if the Budget division knew of the huge refunds planned.
The government would borrow Rs 2,50,000 crore in April-September, 60 per cent of the total budgeted market borrowing of Rs 4,17,000 crore for 2011-12. Though the government will still be borrowing more in the first half, the frontloading is less than what was mobilised during the financial crisis.
