CAG raps Tax Department for ‘inefficient' recovery mechanism

New Delhi | Updated on March 19, 2011 Published on March 19, 2011

The CBDT been urged to frame “a time-bound action plan for recovery of current and arrear demands by fixing targets for each assessing officer.”

The Comptroller and Auditor General of India (CAG) has rapped the Tax Department, terming its recovery mechanism as “inefficient” in view of the massive rise in uncollected certified demand to Rs 95,122.4 crore in 2009-10 from Rs 27,209 crore in 2005-06.

Stating that uncollected certified demand logged a three-fold growth in 2009-10 compared with Rs 27,461 crore in 2008-09, the CAG urged the Central Board of Direct Taxes (CBDT) to frame “a time-bound action plan for recovery of current and arrear demands by fixing targets for each assessing officer”.

In a report on direct taxes, in general, and the tax administration, in particular, for 2009-10, tabled in Parliament recently, the CAG said the uncollected demand is zooming, despite clear provisions in the Income Tax Act to enforce collection and recovery of outstanding demand through “attachment and sale of assessee's movable and immovable property, appointment of a receiver for the management of assessee's properties and imprisonment”.

Recovery proceedings

Pointing out that default in payment of tax are referred to the Tax Recovery Officers (TROs) who draw up a certificate specifying the amount of arrears due from the assessees and proceed to recover the amount, the CAG suggested that the recovery proceedings could be made effective by increasing the accountability of the TROs and ‘incentivising achievements'.

Commenting on the efficiency of tax collections, the report said at the end of 2009-10, as much as Rs 2.3 lakh crore remained uncollected, comprising Rs 1.8 lakh crore demand of earlier years and current demand (2009-10) of Rs 0.5 lakh crore.

However, the tax department told the audit that various factors led to the uncollected demand such as cases stayed/kept in abeyance, assessees not traceable and cases under liquidation. In this context, CAG said Rs 1 lakh crore or 44.6 per cent remained uncollected, as there were no assets for recovery or the companies that were under liquidation or before the Board for Industrial and Financial Reconstruction (BIFR).

Reasons for delay

The CAG asked the CBDT to analyse the reasons for the slow pace of disposal as the Department was able to dispose of only 599 cases or just five per cent out of the 12,060 cases of tax evasion up to 2009-10 in which it had launched prosecution. It said the Department must take due note that the high rate of subsequent acquittal should prompt it to introspect on “the greater effectiveness of prosecution as a deterrent”. It said each Commissioner of Income Tax (Appeals) is required to dispose off a minimum of 60 appeals per month and a total of 720 appeals annually.

Thus, 1.1 lakh appeals could have been disposed of during the year on the basis of the working strength of 151 CIT(A) who were required to dispose 2,60,700 cases during 2009-10. But out of this, only 0.7 lakh appeals or 30.6 per cent were cleared and the average annual disposal per CIT (A) during 2009-10 was only 528 appeals.

Corporate taxation

Referring to effective rates of taxation of corporate, the report said this was 22.8 per cent in 2008-09 which was substantially lower than the statutory tax rate of 33.9 per cent. It found that 179 companies with profits before taxes (PBT) of Rs 500 crore and above accounted for 57.5 per cent of the total PBT and 55.7 per cent of the total corporate tax payable.

But their effective tax rate was only 22.1 per cent, while the effective tax rate was 25.5 per cent for companies with PBT of up,to Rs 1 crore. This shows that tax concessions are being availed by large companies, the CAG said.

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Published on March 19, 2011
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