Exceeding expectations

The finance ministry could not have completed fiscal 2015-16 on a better note. For the first time since 2007-08, the Centre’s gross tax collection has exceeded targets — both the one set in last year’s Budget, as well as the slightly higher Revised Estimate. Tax collections, at ₹14.60 lakh crore, topped the revised target of ₹14.55 lakh crore. That was made possible mostly by the high central excise duty that the government imposed on petroleum products, increasing it incrementally with every dip in global prices through 2015. But for the increased taxes on petroleum products, total tax revenues would have been far lower — excise duty on petroleum products alone accounted for about three-quarters of the total central excise duty collections in 2015-16. Direct tax collections also got bumped up a little with a rush by companies to pay dividends before the end of the fiscal year to avoid the new dividend tax regime that comes into effect from 2016-17.

Tax collections in the current fiscal year may not experience the same buoyancy, and the Centre may find it a struggle to meet the relatively modest 11 per cent growth in revenues targeted for the year, due to several imponderables. For starters, the Centre will not have the same elbow room available to hike taxes on petroleum products. Any flare-up in crude prices could create political pressure to reduce the burden on consumers. The monsoon is another imponderable, and its performance has a direct bearing on rural demand. Additional cess and restrictions on sale of large diesel cars could also dent the Centre’s tax revenues — corporate tax, excise duty on vehicles and fuel, customs duty on parts, all would be affected.

Notwithstanding the uncertainties, smart use of technology and revenue intelligence can help the Centre grow its tax collections. Revenue authorities had started using third party information provided by banks, credit card companies, bond issuers, stock exchanges and registrars of properties, among others, to track down non-filers of tax returns and potential evaders last year. Continued use of technology and data mining to track down evaders would significantly help improve collections, without appearing to harass genuine taxpayers. It will also help bring more people into the tax net, which in the long-term will help lower the burden that a smaller set of tax payers have to bear. Similarly, implementation of the Goods and Services Tax, with its high reliance on information technology to record transactions as well as taxes on each transaction, can also reduce evasion and boost collections.

COMMENT NOW