Exemptions, delayed refunds, arrears weigh heavy on revenue collection

The exemptions extended to individuals and corporate taxpayers under various sections of Income Tax Act have caused the government exchequer a whopping revenue loss to the tune of Rs 6.54 lakh crore in the last three years, a report said.

During the fiscal ended March 2019 alone, the revenue loss is Rs 2.44 lakh crore, which is 68% more than the impact of the recent cut in the corporate tax, according to a report of the Standing Committee on Finance headed by Jayant Sinha. The report was tabled in December last year.

This loss also amounts to one-fifth of the total direct tax collection at Rs 11.26 lakh crore for 2018-19. The individual taxpayers account for about 40% (Rs 97,344 crore), while the corporates account for the rest.

Among the exemptions in personal income tax, the deductions on account of certain investments and payments under Section 80c of Income Tax Act contribute the maximum towards the revenue loss to the government at Rs 75,244 crore or 77% of the total revenue impact in 2018-19.

Other exemption -- under sections 80CCD, 80D, 80TTA and 87A -- have cost the government revenues worth Rs 14,045 crore during 2018-19.

In the case of corporate tax, the biggest loss to the Centre's exchequer came from the incentives for the Accelerated Depreciation under Section 32 of Income Tax Act -- worth Rs 67,758 crore.

Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset’s life.

The incentives under indirect taxes -- which have been primarily combined under the goods & services tax -- have had only Rs 18,000 crore impact on the Centre's revenue. More than half of the indirect tax incentives were availed by the IT and Electronics companies -- worth Rs 9,700 crore.

Many in the government, including Bibek Debroy, Chairman of Economic Advisory Council to the Prime Minister, have long been batting for removal of all kinds of tax exemptions.

Delayed refunds

The committee has lashed out at the Finance Ministry for delays in the refunds, which has been forcing the government to cough up huge sums in the form of interest.

"Taking note of available figures, the Committee would suggest that the processes are revisited so as to dispense with the need for raising unrealistic demands as also payment of disproportionately large advance tax by assesses," the report noted.

In the case of the direct taxes alone, for the financial year (FY) 2017-18, the amount of refund was Rs 1.52 lakh crore and interest paid was Rs 17,603 crore, while the corresponding figures for FY 2018-19 stood at Rs 1.61 lakh crore and Rs 20,566 crore, respectively.

Bulging arrears

The report also noted that the tax arrears in the last five years have attained an alarming proportion. "The Committee is not convinced with the routine reply of the Department that tax arrears recovery has been restrained by authorities or that the assesses are not traceable or they have inadequate assets," the report said, lashing out at the Department of Revenue.

The direct tax arrears as of date stand at an astounding Rs 12.16 lakh crore -- 8% more than the total direct tax mop-up in 2018-19. Of this, Rs 9.97 lakh crore is disputed in various courts of law.

What is even more worrying is the fact that Rs 57,424 crore worth of arrears are pending for more than five years and a portion of it for 10 years as well.

The committee also lashed out at the department for the delay in the search and seizure of the undisclosed income. "The Committee further notes that due to time-lag between the search/survey and passing of assessment orders, the Department is not able to maintain centrally data of actual tax yield of searches and surveys," the report noted.

The report further revealed that the Income Tax department has seized assets worth Rs 1,584.11 crore and uncovered undisclosed income worth Rs 18,594.45 from 983 individuals during 2018-19.