Amid fiscal worries, the government has got some relief on the direct taxes front, primarily due to lower refunds.
Direct tax collection rose 18.2 per cent till December last year. The target of direct tax collection growth was 15.7 per cent for this financial year, according to Budget Estimates. The collection (after refunds) rose to Rs 6.56 trillion till December. This represented 67 per cent of the Budget Estimates of Rs 9.8 trillion. The refunds stood at Rs 1.12 trillion, 23 per cent lower than last year’s Rs 1.38 trillion.
The increase would give some leeway to the government, which faces the challenge of reining in its fiscal deficit at 3.2 per cent of gross domestic product (GDP) due to subdued goods and services tax (GST) collection, transfer of surplus by the Reserve Bank of India and telecom spectrum receipts. The government is looking at a shortfall of about Rs 500 billion from these heads.
The 23 per cent drop in refunds was the reason gross direct tax collection (before refunds) growth was much lower at 12.6 per cent in the first nine months of the current financial year, against 18.2 per cent net collections a year ago. The collection had increased to Rs 7.68 trillion during April-December 2017.
Neeru Ahuja, partner, Deloitte Haskins and Sells, said lower refunds could be on account of a reduction in regular assessments by the direct tax department. “Regular audits and assessment have come down. The department is going for risk-based assessment now and picking up cases where there are issues. In transfer pricing, in particular, the assessments have seen a substantial reduction.”
Vikas Vasal, partner, Grant Thornton, said a reduction in refunds was on account on two major factors — pending refunds being cleared last year and litigation going down. “In transfer pricing, the government has eased out many things. At the consulting level we feel that the number of cases has gone down as the government has increased thresholds and issued enough clarifications. Besides, there is a more pragmatic approach in picking up cases for litigation by the department.”
The First Advance Estimates for GDP growth in 2017-18, released on Friday, indicated the fiscal deficit as a percentage of nominal GDP would come in at nearly 3.3 per cent, as opposed to the target of 3.2 per cent, even if the deficit was retained at the budgeted Rs 5.46 trillion. Data released by the Central Statistics Office showed that GDP at current prices was expected to grow to Rs 166 trillion from a provisional estimate of Rs 152 trillion in 2016-17.
The government had by November run up the fiscal deficit at 112 per cent of the target set out in the Budget for 2017-18. This was the highest deviation from Budget Estimates in the first eight months of a fiscal year since 2008-09, the year of the global financial crisis.
About Rs 3.18 trillion has been received as advance tax up to December 2017, reflecting a growth of 12.7 per cent over collection in the corresponding period of the previous year. Growth in corporation advance tax was 10.9 per cent and that in personal income tax was 21.6 per cent.