Moves Afoot To Widen Scope Of Expenditure Tax

The changes being debated in the ministry are likely to be incorporated in the next year's budget. At present, the scope of expenditure tax is restricted largely to hotels and select restaurants. Expenditure tax was introduced in 1987 and nets on an average about Rs 200 crore.

It is felt that unless a tax credit is provided, the measure may prove extremely unpopular. Tax credit allows companies to pay in advance and offset the excess amount, if any, against other direct tax liabilities.

If a tax credit is provided then an individual or company can claim it when the annual tax returns are filed; moreover, it will end up being a tax on expenditure and will assist the department in widening the tax base and raising fresh resources. As a result, sources said, more people will have to disclose their income sources.

 

Alternatively, if the government presses ahead with the current form of expenditure tax then there is a chance that it could result in a higher rate of taxation regardless of the income status. Besides, a potential tax evader can continue to conceal his sources of income.

The discussions in the ministry come at a time when there is uncertainty over the tax collection targets for the year. While under indirect taxes excise targets are under a cloud, the poor performance of corporates has cast doubts on the direct tax collection target of Rs 40,000 crore.

At the end of October, the collection under corporation tax was Rs 7,125 crore and that of income tax was Rs 8,131 crore. As a percentage of the annual targets, This worked out to 36 per cent and 46 per cent, respectively.