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Direct tax arrears of Rs.5.8 trillion bigger than fiscal deficit
June, 18th 2013

Direct tax collection in India in the year ended March grew 13% to Rs.5.58 trillion, while arrears jumped 20%.
Cumulative direct tax arrears stood at Rs.5.8 trillion on 1 April, according to the central action plan for 2013-14 prepared by the Central Board of Direct Taxes (CBDT). The arrears are bigger than the fiscal deficit, estimated at Rs.5.42 trillion for the fiscal year to March 2014.

CBDT’s central action plan, a copy of which was reviewed by Mint, was released earlier this month for circulation within the income-tax (I-T) department.
It outlines the tax collection plans of the agency for the current fiscal. The agency plans to collect Rs.6.68 trillion in direct taxes, about 19.69% more than last year.
CBDT is the apex authority that administers direct taxes.

In 2012-13, due to the slowdown in the economy, direct tax collection fell short of the revised target of Rs.5.65 trillion; the earlier target was Rs.5.70 trillion. To boost the collection this fiscal, the department has sent notices to at least 70,000 defaulters.

In the current fiscal, the tax authority plans to recover at least Rs.61,018 crore through arrears, according to CBDT’s central action plan—about three times the amount it had planned to collect in the last fiscal.

A large number of cases where tax demands have been raised have been stuck in appellate tribunals and courts.

Other tax arrears, such as those related to Harshad Mehta are purely notional. In 1992, the late Mehta was indicted by the Bombay high court in a Rs.5,000 crore securities scam. CBDT, to achieve its stiff target, has asked its legal counsels to follow the apex court’s ruling in the Vodafone Group Plc. tax dispute case. In 2010, the Supreme Court had directed Vodafone to pay 25% of the demanded taxes to the government and deposit the remaining 75% as a bank guarantee even before admitting its appeal in court.

CBDT wants its legal counsels to push for similar judgements in all tax disputes pending in various courts. “The underlying principle is that the government needs funds in public interest and there should be no impediments in recovery of taxes,” said CBDT’s central action plan.

In 2007, Vodafone International Holdings, a Dutch unit of the British telecom firm, bought the Indian business operations of Hutchison Telecommunications International Ltd through the sale of a Cayman Islands-based firm called CGP Investments Ltd, a unit of Hutchison, in a $11 billion deal.

The Indian tax department estimated the company’s liability at around Rs.11,000 crore for not withholding tax while paying Hutchison.

The Supreme Court, in its judgement in January last year, held the deal was not taxable in India. Subsequently, the government introduced retrospective amendments to tax laws and revived the Vodafone case despite the apex court’s order. At present, the government has decided to enter into a non-binding conciliation with Vodafone to resolve the tax dispute.

CBDT has also asked the tax department to recover arrears from defaulters with the help of Credit Information Bureau (India) Ltd, or Cibil, the country’s largest collector of databases on borrowers. “Since Cibil also contains information about the credit rating of entities, it would also help in ascertaining the financial capability of the PAN (permanent account number) holders against whom the demand has been raised,” said the CBDT central action plan.

Indirect tax collection up 3.8%
Indirect tax collection in April- May, the first two months of fiscal 2014, grew by a meagre 3.8% to Rs.71,379 crore.

Customs duty collection was Rs.28,080 crore, while service tax collection was Rs.19,710 crore, people in the finance ministry said. Excise duty collection for the period was Rs.23,589 crore. Indirect tax collection in May grew 4% to Rs.37,695 crore.

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