Facing tax and divestment shortfall, govt puts faith in Vivaad se Vishwas

The scheme is the sixth tax amnesty launched by Modi-govt; none of its predecessors has yielded anything close to Rs 9 trillion, the amount the govt hopes to mop up this time

In her 2020-21 Union Budget, Finance Minister Nirmala Sitharaman had revised downwards the 2019-20 revenue receipts estimates by about Rs 1.12 trillion. Net tax revenue projections for the current fiscal year, which ends on March 31, were revised downwards by Rs 1.45 trillion.

While non-tax revenue estimates were revised upwards by around Rs 32,000 crore, divestment estimates were revised from Rs 1.05 trillion to Rs 65,000 crore.

Now, senior government officials confirm that even the revised tax numbers (excluding any amnesty scheme) and divestment estimates for 2019-20 are unlikely to be met. This may not lead to a proportionate cut in the revised expenditure estimates, as the centre is counting on its latest amnesty scheme, ‘Vivaad se Vishwas’ to make up any shortfall.

“The tax and divestment targets are unlikely to be met. But we have Vivaad se Vishwas. The tax officials are in talks with large private sector corporates and state-owned companies,” a top government official told Business Standard. “Instead of many corporates coming into this, we will be okay with the top companies, that could make up for some of the shortfall,” the official said.

The direct tax Vivad Se Vishwas, is specifically aimed at tax disputes involving a total of Rs 9.32 trillion at various fora of appeals, including income-tax commissioners (appeals), income tax appellate tribunal (ITAT), debt recovery tribunals, high courts and the supreme Court. Not all of this amount will be recovered before March 31.

The bill which will give the scheme legal backing is expected to be cleared by Lok Sabha in the current Budget Session of Parliament.

As reported in the media, the Income Tax Department has already drawn up a list of PSUs and corporates and tabulated the pending tax demand. The tax department personnel’s pay hikes and postings will also be linked to how much they mop up under this scheme.

The taxman has identified at least 50 central and state PSUs to be covered under the litigation settlement scheme. These PSUs could represent pending amount of more than Rs 1 trillion. SBI, LIC and ONGC are among the major PSUs with pending direct tax disputes estimated at Rs 30,000-40,000 crore.

In an official communication, field officers have been informed that the performance assessment target under the scheme is 100 per cent of cases, which has already given rise to fears of harassment of taxpayers. The assessees have already started to feel the pressure from tax officials to withdraw cases and settle the disputes through the scheme.

However, if one goes by recent history, there is a catch. The direct tax Vivaad se Vishwas scheme is the sixth tax amnesty scheme launched by the Narendra Modi government in its five-and-a-half years.

None of the other schemes has yielded anything close to Rs 9 trillion. The maximum fetched was by the Income Declaration Scheme brought prior to demonetization, but whose payment process more or less coincided with the banning of high value rupee notes of 500 and 1,000. Even then, tax collected was Rs 29,362 crore or not even 30 per cent of Rs 1 trillion, let alone Rs 9.32 trillion.

As reported earlier, he centre is unlikely to meet its 2019-20 revised divestment target of Rs 65,000 crore because of bearish market conditions. With a number of offers for sale (OFS) such as NMDC, SAIL, PFC, Coal India, IRCON and Hindustan Aeronautics planned for March getting deferred, the divestment target could fall short by close to Rs 10,000 crore, government estimates suggest.

Additionally, the recovery that the centre was expecting in the second half of the year has not yet materialized. An unprecedented contraction in investment and manufacturing output in two successive quarters dragged down India’s economic growth to a 27-quarter low of 4.7 per cent in the quarter ended December 2019 (with the previous quarter’s growth having been corrected). Looking ahead, gross domestic product (GDP) growth is set to stagnate at 4.7 per cent in the March quarter (Q4) too, according to the annual estimate of 5 per cent by the National Statistical Office (NSO). This will impact corporate and income tax collections.