Net direct tax mop-up dips on high refunds

Net direct tax collections fell sharply by 47.9 per cent to Rs 12,954 crore in the first two months of the current financial year, as refunds during the period more than doubled compared to last year. Net direct tax collections in April-May 2010-11 were Rs 24,878 crore.

Gross direct tax collections, however, increased by 37.34 per cent to Rs 50,405 crore, against Rs 36,702 crore in the year-ago period. “The decline in net collection was on account of an increase of 216.74 per cent in tax refunds, which stood at Rs 37,451 crore, against Rs 11,824 crore last year,” the Central Board of Direct Taxes (CBDT) said in a statement.

More than four million income tax refunds were issued this financial year. In the last fiscal, a record 8.5 million refunds were issued by the Income Tax Department. The department had refunded Rs 57,000 crore in 2009-10.

MONEY MATTERS
	April-May 2010-11	April-May 2011-12	Growth (in %)
Net direct tax collections	24,878	12,954	-47.90
Gross direct tax collections	36,702	50,405	37.34
Refunds	11,824	37,451	216.74
(figures in Rs cr)

The Budget estimate for direct tax collections this year is Rs 5,32,651 crore — up 19 per cent over the last year’s revised estimate of Rs 4,46,000 crore.

The increase in refunds by the CBDT had upset the government’s finances. The Department of Economic Affairs (DEA) has warned that the Centre should moderate refunds. The DEA’s contention was that a higher refund outgo has put pressure on the government to borrow more in the short-term.

When CBDT rejected the idea of moderating or staggering the refunds, the matter had reached Finance Minister Pranab Mukherjee, who asked the two departments to resolve it between themselves.

Concerns are also being raised that a sharp increase in refunds as well as possibility of an economic slowdown might lead to a shortfall in projected tax collections.

The tax department, however, has maintained that it would meet the target as it did last year despite a high refund outgo. Once the arrears are cleared this year, the department expects the yearly refund payout to stabilise at around Rs 70,000 crore for the coming years.

The department would give another Rs 70,000-75,000 crore of refund this year, taking the total refund to Rs 1,05,000 crore. The department would have to collect gross taxes of about Rs 6,37,000 crore this year to meet its net direct tax collection target.

The finance ministry had recorded a compounded annual growth rate of 29 per cent in direct tax collections for four years up to 2007-08.