Direct tax mop-up has grown barely 2% this fiscal so far despite telltale signs of a pickup in economic activity, prompting the government to look at new measures to boost collections.
The collections will have to grow by over 18% for the rest of the year to achieve the enhanced target of Rs 4,00,000 crore for the year 2009-10.
As part of the efforts, the Central Board of Direct Taxes (CBDT) - the apex body that administers all direct taxes such as corporate tax and personal income tax - will take a close look at the advance tax collections, scrutinise companies that enjoy tax holidays, carry out searches and even reopen certain cases.
A detailed instruction about the measures to boost direct tax collections will be sent field officers, an Income Tax department official close to the developments told ET.
Direct tax collections grew 3.6% in the first half of the current financial year. But due to a sharp increase in refunds, the growth has dropped to drop to less than 2% by the third week of October 2009.
This has caused alarm in the government as preparations for the budget for the next year have already begun. The authorities are counting on a robust growth in direct tax collections to meet revenue targets. Indirect tax collections are expected to disappoint as the government had cut rates earlier in the year to stimulate the economy.
The Indian economy is expected to grow at 10% rate in terms of current prices in 2009-10. The tax collections should grow at least at that rate, the official said.
Corporate advance tax did grow at 14.7% in the second quarter, but the department feels the pace would have to be maintained for the next two quarters if the government is to reach anywhere near its target.
Indications are there that companies are having a good third quarter and, therefore, advance tax collections should look up. Consumer durables companies and automobile companies have reported sharp increase in sales in recent months.
The robust 10.4% increase in industrial growth in August underscores the economic recovery underway.
The CBDT wants to ensure that taxpayers do not defer advance tax payments, as sometimes corporates choosing to pay up later with a penal interest.
The CBDT is also exploring the opportunities thrown up by the retrospective changes in the tax provisions in the budget this year.
The criterion for computation of "book profit" for the purpose of minimum alternative tax (MAT) was changed with effect from April 1, 2001.
Some tax exemptions to the infrastructure sector, export oriented units and software technology parks and units in special economic zones (SEZs) were also altered from April 1 2000. For these companies, it would be double trouble as barring SEZs most are under the minimum alternate tax regime.
The change that was introduced in respect of MAT would increase companies profits and enhance their tax outgo. But recovering these dues will not be easy feel experts.
"If the department goes aggressive in respect of retrospective amendments and reopens assessments that have been completed, it could lead to litigation and add to administrative costs and burden for corporates," KPMG partner, Vikas Vasal said.
The investigation wing of the department has also drawn up a strategy to carry out targeted and focused searches and surveys with a view to nab tax evades and maximise tax collections.