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Direct tax kitty may fall short by Rs 60,000 cr
March, 02nd 2009

The government may end up with a shortfall of close to Rs 60,000 crore against the target for direct tax collections for FY09, given the slowdown in the economy, according to senior tax department officials.

With the fiscal year coming to a close, the mood in the revenue department is in stark contrast to the upbeat mood that prevailed during the first two months of the current fiscal, when tax collections registered a 71% year-on-year rise.

Getting carried away by the buoyancy in collections, the finance ministry, in June 2008, revised the target upward by Rs 30,000 crore to Rs 3,95,000 crore against the budgeted Rs 3,65,000 crore for the fiscal. The revised target was 25% higher than the previous fiscal collection of Rs 3,14,000 crore.

However, since the beginning of the third quarter, the combined effects of recession in the West and a slump in demand in the local market have started impacting companies here. With firms reporting lower earnings over the past few months, tax receipts are bound to take a hit.

Officials in the tax department said the final mobilisation could fall well short of the full-year target. This signals bad news for fiscal policy managers, considering that lower tax collections will have a negative impact on the countrys fiscal deficit, which has been projected at 6% for FY09 against the original budget estimate of 2.5%.

Over the past few years, the government managed to prune its fiscal deficit the excess of expenditure over revenue thanks to a robust growth in tax receipts as a result of an upswing in the economy, which was annually at an average of close to 9% over the past four years. Buoyancy in tax receipts reduced the need for the government to borrow to bridge the deficit.

But that trend is set to be reversed since the government has announced a slew of stimulus packages, tax giveaways to revive demand, besides a loan waiver to farmers, huge subsidy bills and now a lower tax collection all of which will contribute to a higher debt burden.

Although chief commissioners of various zones have been routinely briefing their officers regarding the measures to be adopted to plug tax leakage, these exercises are yet to yield results. Surveys and raids, the two major tools which the department has as a deterrent to tax evasion, have been deployed discreetly, but met with limited success.

According to industry officials, a majority of corporates are reporting lower margins this year, compounding the taxmens problems still further. The tax paid by MNCs operating in India over 3,000 of them operate here may record a marginal growth this year compared to last year. Tax officials expect to net Rs 12,000 crore this year from cross-border transactions, against the original projection of Rs 15,000 crore.

On top of it, collection by way of tax deducted at source (TDS) too reflects the general slowdown in the economy, with several companies failing to pay up despite having deducted tax from their respective clients. A shortfall of over Rs 10,000 crore is expected in TDS collection alone, an official said.

Tax officials have summoned top officials of companies that are reporting lower margins, in a bid to seek details of their financials. Most companies attribute the lower margins to the general slowdown. The initial response of the department to this slump was to meet the target whatever the odds may be.

The stand changed as the deadline approached and the reality of having to reconcile to a severe shortfall in the target hit them. Now, the department is trying to limit the shortfall within Rs 60,000 crore.

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