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`With high tax collections, some concession in rates can be thought of'
November, 13th 2006


Annual information returns have improved tax collections: Pandey


Rupees one lakh crore is what direct tax collections were itching to cross recently. Over the period April to October end, collections rose to Rs 91,000 crore, as against Rs 66,000 crore in the first seven months of last fiscal, thus achieving a jump of almost a third. For a change, therefore, the taxman is worried, not about shortfall in collections, but about exceeding budgeted targets.

Mr T.N. Pandey, former Chairman of Central Board of Direct Taxes, decodes the buoyancy in direct tax revenues, in his answers to the following questions from Business Line.

Is the growth uniform among the components of direct tax?

No, they vary widely. From 24 per cent in personal income-tax and FBT (Fringe Benefit Tax), to 125 per cent in BCIT (Banking Cash Transaction Tax). In absolute terms, corporate tax has shown the highest increase, from Rs 38,000 crore to Rs 55,000 crore.

A sign of more income being assessed to tax?

Burgeoning collections are not because of very many high-income assessments having been made from April 1, but because of higher payments on account of advance tax and tax deduction at source (TDS). Such payments would be adjusted only next year.

Can we attribute the increase in direct tax collections to GDP growth?

An important reason for more collections in direct tax collections is high GDP (gross domestic product) growth. India's economy currently is the third fastest growing in the world after China and Vietnam. The higher industrial production has given strong hopes for sustained GDP growth in future, resulting in more incomes and consequently more tax. What is notable in this growth is horizontal expansion, which would result in cost economies, and also reduction in regional disparities. The combination of high growth with infrastructure development reflects as higher incomes and more tax, which trend is likely to continue.

What accounts for the rise in corporate profits?

One finds that results for the half-year `06 have been more than what these were for the full year 2005-06, leading to accelerated growth in the earnings of the companies. Strong second quarter results have enabled around many companies to declare interim dividend, ranging from 5 per cent to 300 per cent. The thrust on infrastructure development has boosted industries such as cement, steel, and so on, considerably. Let's not forget the buoyancy in stock markets. The Sensex recently crossed the 13,000-mark, and the impact of this is evident in tax collections. STT (Securities Transaction Tax) collections have more than doubled, from Rs 1,000 crore to Rs 2,500 crore.

How do AIRs (Annual Information Returns) help in boosting revenues?

AIRs have considerably improved tax collections. Data on high-value transactions in properties, credit cards, bonds, mutual funds, share dealings, and so forth, are generated from AIRs. For 2004-05, the Income-Tax Department received information from AIRs relating to 17 lakh transactions valued at Rs 14 lakh crore. More importantly, the fact that AIR can be a source of high-value deal data has a psychological impact on assessees, who would now want to play safe and take into account the income invested in high value transactions while paying their taxes. Much progress in future would, however, depend on how the returns are scrutinised and defaults publicised and punished to create deterrence for the defaulters. There are apprehensions, though, that AIR-based scrutiny would create hassles for the taxpayers.

Can we expect a reduction in tax rates, now that revenues are beating budgetary estimates?

Reasonable tax rates have been a great contributory in developing a feeling that it is better to pay tax than to evade. This view is constantly improving voluntary compliance. With high collections, some more concession in the matter of tax rates can be thought of.


BCTT and STT have, besides generating revenue, been good policing measures to ensure better compliance to tax laws. FBT, though correctly conceptualised was wrongly enacted. Yet, it can give a fillip to tax revenue if held to be constitutionally valid.

Do we incur a high cost to collect taxes?

In fact, low cost of collections has been contributing to more revenue. The C&AG (Comptroller and Auditor General) report on revenue audit for 2004-05 tabled in the Lok Sabha on May 19 shows that the cost of collection of corporation tax per rupee was 0.17 paise as compared to 0.30 paise in 2000-01. For income-tax, cost of collection per rupee declined from 2.59 paise in 2000-01 to 2.19 paise in 2004-05. The cost of collection metric needs to be seen in the background that 91.64 per cent and 88.80 per cent of gross collections during 2004-05 from corporate and non-corporate assessees was realised in the form of advance tax, TDS and self-assessment tax.

Does the cost of administration need pruning?

It may not be a wise policy to push costs towards very low figures, as that can be fatal to efficiency in work. Likewise, delays in filling up the posts sanctioned need to be curbed. C&AG report for 2004-05 shows that nearly 1,600 gazetted posts, sanctioned some 5-6 years back, were not filled up since then. Recently, 7,051 posts for the I-T Department have been sanctioned in the gazetted and non-gazetted cadres.

Is the buoyancy in direct tax collection sustainable?

There are strong indications that the tax buoyancy noticed till October this year is maintainable. Of course, administrative actions and vigilance are imperative to ensure that scrutiny regarding the AIRs is done timely. Economic indices too are favourable. There may be more flow of foreign investments, accelerating the economic growth if two factors are taken care of, viz. rigid bureaucratic objections, and political corruption. On present assessment, it may be possible to reach the 2006-07 Budget target of Rs 2,10,000 crore for direct tax collection, or even increase it to Rs 2,25,000 crore.

D. Murali

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