In the last two years, government revenue receipts, especially direct taxes, have witnessed an unprecedented spurt. In fact, 2006-07 may be a watershed year for the revenue department in that it will best the Budget targets under every head—in the case of excise it will be the first time in over a decade. While the resurgent economy holds the key to this trend, there is no denying that beefing up tax administration too has helped in boosting collections. Monica Gupta and Sanjiv Shankaran of Mint spoke to K.M. Chandrasekhar, revenue secretary in the ministry of finance on this trend and also on a range of issues emerging from the Union Budget, 2007-08. Excerpts:
Despite not achieving excise collections, the finance ministry has projected an increase of over 10% in excise collections for the coming fiscal. Is that realistic?
We have received information that we have collected Rs2,000 crore more this year. So we will actually achieve the excise target for the first time in over a decade. We have done quite a lot of work in income tax, in direct tax in terms of toning up administration and so on. Now next year we need to focus on excise, since it has been lagging behind to a certain extent.
And we think we will be able to achieve growth particularly if we look at certain sectors and areas of leakage—like Cenvat utilization against bogus invoices, clandestine removal is another area and like in income-tax, put certain systemic solutions in place.
To a great extent, when we move over to compulsory e-filing which we are going to do for firms in excess of Rs50 lakh, that itself will lead to substantially more information on the basis of which we can do more.
Would you elaborate on these systemic changes?
One is e-filing. Basically we need to build a system of invoice control that is there must be linkages established between different units. We are working on two or three models that have been suggested to us where we will try to establish linkages between firms utilizing Cenvat and those which are supplying inputs on the basis of invoices.
Of course, the system will come into place in another couple of years, particularly when you have GST in position because then you will link up everything and then automatically you will be cross-checking everything.
What is the quantum of the leakage in excise?
The department had looked at the issue internally and on the basis of an estimate that we are able to locate only 5% of the leakages, the figure is close to 20% of the total excise collections (of 2006-07), which is around Rs20,000 crore.
Why has the department pegged lower arrear collection targets in case of direct tax, customs and service tax?
We have a total outstanding arrear amount. Of this, some are stayed with the courts, some stayed with the debt recovery tribunal or with the appellate tribunal. Thereafter, we arrive at what is the collectible balance and then, according to the collectible balance, we fix the arrear target.
The collectible balance has been coming down, which is another reason why we can’t always have a higher arrear target unless there is some progress say the courts for example, and an amount is released for assessment and in favour of the government for recovery.
The sample size of companies used to calculate revenue forgone in the Budget this year has increased substantially. Is this on account of a better database with the revenue department?
Yes, last year we had a sample size of 1,609 companies while this year we have obtained three lakh returns electronically, so that has been used to calculate the revenue foregone. We are now planning to introduce mandatory electronic filing for all firms under section 44AB (of the Income-Tax Act).
So far we have made electronic filing compulsory for corporates and service tax.
What are the internal collection targets for BCTT and FBT this year in view of the changes introduced with regard to both taxes in the Budget?
FBT collections this fiscal have been close to Rs5,000 crore. The collections have virtually stabilized around this figure and we don’t expect too much of a change because we don’t know how much Esops is going to give. Esops will depend on the date of option so it is difficult to predict how much we will collect from it.
BCTT collection has been around Rs250-300 crore. The idea of this tax is not collection but that it will lead us to undisclosed income, which it has of about Rs1,700-2000 crore.
So has your intelligence network improved?
We have substantially strengthened our intelligence machinery. And, we have more information on account of the annual information returns. All the AIR data have been analysed by us and we have sent letters to individual taxpayers. Our scrutiny has become more intelligence-oriented. We are going to bring in more transactions under AIR but it is not likely to be more than four or five, since we have a limited capacity to analyse all the data that we collect. In 2005-06 we had 19.3 lakh transactions valued at Rs14.06 lakh crore (pertaining to the fiscal 2004-05) while in 2006-07 we had 20 lakh transactions valued at Rs16.38 lakh crore (pertaining to the fiscal 2005-06).
What about the Direct Tax Code?
What we would like to do is to bring it to Parliament sometime this year. It will help in many ways—the way we are drafting it, it will be in simple language. In the present Income-tax Act, we try to explain mathematical calculation in words; that is where the complications arise. That we are giving up, we are just going to give the formulae, so it becomes very easy. It will definitely be more compact. (The) number of sections will come down, the provisos will go. We will float some ideas regarding withdrawal of exemptions in the Code. However, it is up to Parliament to take a view on this.
What is the vision for service tax in the year ahead?
Basically in service tax, we are going in for a combined tax structure with the state governments. Some areas where their tax-collection machinery has more strength than ours —like tourism, hotels, etc., areas where the state can collect better, will go to the states for collection. We (Centre) will focus on larger services which have a pan-India mechanism of collection.
Will states receive 100% of the 33 services which are at present being taxed by the Centre?
Yes, the agreement is that the states will receive 100% of the proceeds. We are only collecting for them this year. They have to collect the service tax on these services from next year.