One section of the Union Budget which always elicits surprise from all those scrutinising the Budget documents is: ‘Tax revenue raised but not realised’. Sample this, the total amount of tax revenue which has not been realised despite tax demand being raised amounted to a whopping ₹16.19-lakh crore as of March 31, 2021. The Centre’s net tax revenue was only ₹14.26-lakh crore in FY21.
But before one gets carried away with visions of large inflows by realising these dues, it needs to be realised that a large part of this is unlikely to be recovered. Tax demands of around ₹12.13-lakh crore, or 75 per cent of total sum, is currently under dispute in various courts; of these, more than 42 per cent is due for more than two years. The sum not under dispute are not being paid because the assessees are not traceable or there are inadequate assets to back the demand.
The crux of the problem is that tax demands are being raised without proper due diligence. The CAG in a report in December 2017 had noted that the “arrears of tax demand in FY 2016-17 was of ₹10.4-lakh crore, of which, 98.6 per cent would be difficult to recover.” It further rapped the Income Tax department on the knuckles for raising exaggerated demands which resulted in refunds and payment of interest to the taxpayers.
Use of automation to pick errant taxpayers is probably increasing these frivolous tax demands and bloating the outstanding amount further. It may be good if tax officials take a closer look at these dues and write off those which are unrecoverable so that a humongous number does not keep popping out every Budget. The Revenue also needs to go slow with frivolous tax demands. Dispute resolution schemes such as Vivad Se Viswas and Sabka Vishwas Legacy Dispute Resolution will work only if the underlying tax demand has any merit.