The retrospective tax amendments for the Vodafone case and the General Anti Avoidance Rules (GAAR), pushed by the Income-Tax Department in the Budget to tackle tax avoidance and perk revenue collections, are, in fact, doing just the opposite, an internal assessment of the department has shown.
A discussion paper on exploring new areas in revenue mobilisation, prepared for the two-day annual conference of chief commissioners and directors general of income tax held on June 11 and 12, says: “Retrospective tax changes due to the apex court decision on Vodafone, and GAAR provisions, are dampening the sentiments of non-resident Indians (NRIs) and foreign residents. That will affect liquidity in the market and rupee may fall further.”
A senior official of the department said the papers were prepared after serious deliberations, and the I-T department’s admission on these measures at this juncture could be significant pointers to achieving the direct tax collection target for 2012-13.
Direct tax collections in 2012-13 have been pegged at Rs 5,70,257 crore, against the revised 2011-12 target of Rs 5,00,651 crore. The actual collections for 2011-12 were Rs 4,88,000 crore. This means the Budget Estimates for 2012-13 peg direct tax collections to be Rs 82,257 crore, or 16.80 per cent, higher than the actual collections for 2011-12.
The note on new areas in revenue mobilisation suggests that achieving the Budget target in the current scenario, particularly when the economy is not doing very well, may be an uphill task. It also says Finance Minister Pranab Mukherjee’s GDP growth projection of 7.6 per cent for 2012-13 would be difficult to achieve.
The assessment further outlines that twin anti-growth measures — persistent high inflation and high interest rate due to tight monetary policy — are eroding business profits and would continue to do so.
A one percentage point fall in GDP translates into a decline of Rs 20,000-25,000 crore in revenue collections, the note mentions. It adds, 22 per cent drop in the value of the rupee against the dollar has imposed an additional burden of $6.6 billion on Indian companies going for external commercial borrowing and foreign currency convertible bonds.
Against this backdrop, the I-T department has started looking at new areas to substantially augment revenue collections in 2012-13.
