The Hindu Business Line : Raising the bar on tax receipt front

AS the Finance Ministry is all set to get incommunicado for the media on the plausible grounds of preparing itself for the next fiscal year's budget, reports about trends in tax receipts until now paint a buoyant picture with the overall emphasis being squarely laid on improving tax to gross domestic product (GDP) ratio from 9.2 per cent in 2003-04 (revised estimate) to 10.2 per cent in the current fiscal.

Fresh from his stint in Geneva as India's Ambassador to WTO there, the new Revenue Secretary, Mr. K.M. Chandrashekhar, lost little time in declaring that the targeted gross tax revenues to the tune of Rs 3,17,333 crore would be met as the trends so far remain on course with some slippages on the indirect taxes front. However, there could be some reallocation of tax receipts under various heads to ensure that the overall target of tax receipt is met.

The Union Finance Minister, Mr P. Chidambaram, has also been underscoring the need to improve tax-GDP ratio and focussing on tax receipt drive through personal involvement and interaction with tax officials at the highest level in the light of an outspoken admission by no less a body than the Planning Commission that the Centre's ratio of tax revenue to GDP has not increased as was projected in the Tenth Plan document.

No doubt the performance for income tax, corporation tax and service tax remain in line with targets but the Government had the unenviable task of reining in inflation that threatens to pierce the comfort zone. Hence, the Government resorted to cut in customs and excise duty during the course of the current fiscal in a bid to moderate cost-push inflation.

While the pick-up in industrial activity and higher volume of imports might pan out desirable receipts on the excise and customs front, an internal note by the Finance Ministry reveal that the revenue implications of various duty cuts announced in the budget and post-budget to tame the demon of inflation are quite substantial of the order of Rs 7,689 crore for 2004-05. Of this, the biggest hole on the excise receipt was accounted for by petroleum, oil and lubricants' (POL) twin duty cuts announced in June and August 2004 which cost the exchequer of a net Rs 4,124 core, followed by steel sector at Rs 3,100 crore and the overall loss due to restructuring of duty rates in regular budget on the textile sector entailing a revenue outgo of Rs 1751 crore. Together, these industrial items involved a net revenue loss of Rs 7,492 crore in 2004-05. Net loss from customs duty changes during the course of the year as also emanating from budget proposals was estimated at Rs 197 crore, taking the overall revenue implications of various fiscal relief measures for the whole year at Rs 7689 crore.

However, it is gratifying to note that the Finance Minister has mandated a sum of Rs 2,250 crore by way of recovery of Central excise arrears during 2004-05 while another Rs 7,000 crore by way of direct tax arrears for the current fiscal has been assumed. Against the Budget target of Rs 14,150 crore from services tax, the trends till October on this front were quite encouraging at Rs 5,951.58 crore.

While a special Extraordinary Taxpayers Friendly Scheme for Registration of Service Providers was launched earlier and extended up to November 30, the tax authorities had already initiated a programme of street-to-street survey beginning from mid-November to last up to mid-February 2005 to further identify any of the defaulting service providers. The premise for such a survey is that last year analogous exercise resulted in registering about 45,000 new assessees.

As services segment accounts for more than half of the country's GDP, it is time that the authorities expand the base in this segment by roping in more professionals who are now out of the services net. It is also instructive to note that six exclusive Service Tax Commissionerates have been created for effective monitoring and implementation of Service Tax Law in arrears having vast revenue potential. This might definitely send the right signal to potential assessees too that they would have nothing to fear from declaring their professional income and pay a portion of it by way of tax just as legions of ordinary wage-employees or white-collar workers do in the country.

In sum, the National Common Minimum Programme (NCMP) commits the Central Government to increase the tax-GDP ratio by undertaking major tax reforms that expand the base of tax system, improve tax compliance and make tax administration modern and more efficient. So, as the Finance Minister sets out to prepare his second budget under the UPA dispensation, a lot is expected of him in terms of bringing benefits to all stakeholders of the economy in general and all those honest taxpayers in particular.