Amnesty schemes cannot help fill the void in tax collection

While presenting the Budget for 2019-20, Finance Minister Nirmala Sitharaman had set gross tax receipts (GTR) target of about Rs 24.6 lakh crore. In the Budget for 2020-21, the revised estimate [RE] for 2019-20 at Rs 21.6 lakh crore is short by a whopping Rs 3 lakh crore. In direct taxes alone, the shortfall is Rs 1.6 lakh crore, the RE being Rs 11.7 lakh crore against the budget estimate [BE] of Rs 13.3 lakh crore.

For 2020-21, the FM has set the GTR target of Rs 24.23 lakh crore – an increase of Rs 2.63 lakh crore over the RE for 2019-20. The direct tax target is Rs 13.19 lakh crore, an increase of Rs 1.49 lakh crore over the 2019-20 RE.

Faced with a substantial shortfall in tax collection during 2019-20 and apprehensive about its ability to achieve the ambitious target for 2020-21, the government is latching on to unusual ways of garnering additional revenue.

On September 1, 2019, it launched the ‘Sabka Vishwas’ Scheme [SVS]. With an intent to settle still-unresolved disputes relating to excise and service tax under the erstwhile dispensation (prior to GST), the scheme provided for relief varying from 40% to 70% of the tax dues depending on the amount of dues involved in disputes other than those covered under ‘voluntary disclosure.’

Out of a total of 1.83 lakh cases (the scheme closed on January 15, 2020), reportedly 95% have been settled, yielding about Rs 38,000 crore. Of this, Rs 25,000 crore having already been collected (and reflected in reported numbers), the accretion — being the balance amount of Rs 13,000 crore — will be too small to make any meaningful impact in terms of plugging the mammoth shortfall. Besides, what the government has got — Rs 38,000 crore — is barely 15% of the amount under dispute (about Rs 2.5 lakh crore).

Undeterred by the disappointing collection under SVS, in her Budget speech for 2020-21, the FM announced another scheme called ‘Vivad se Vishwas’ [VSV]. Under the scheme, which will run till June 30, 2020, beneficiaries can pay disputed tax arrears without interest and penalty if paid before March 31, 2020. If the beneficiary pays the amount after March 31, 2020 but before June 30, 2020, then he will be need to pay 10% extra. In case the tax dispute is over penalty, interest or fee, the settlement amount payable is 25% of the dues if paid before March 31, 2020.

According to the Parliamentary Standing Committee on Finance, there are close to five lakh cases involving demand under litigation of about Rs 9.96 lakh crore, including Rs 5.02 lakh crore in corporate tax and Rs 4.94 lakh crore in personal income tax. If all taxpayers avail of this scheme, the government could garner an amount enough to completely wipe out the entire shortfall in tax collection during 2019-20 and keep a huge buffer for 2020-21. But this is daydreaming!

Had taxpayers been really serious about paying the entire amount under dispute, why would they contest the demand and engage with the tax department in prolonged litigation. The reality is that the former have simply no interest in paying up. Under SVS, almost all of the taxpayers [read 95%] came forward because the government on its own volition offered to waive up to 70% of the demand in certain cases.

In sharp contrast, under VSV, the litigants are required to pay the entire amount under dispute. Hence, they won’t avail of it.

The government is not unaware of the fate. This is evident from the Income Tax Department having given a target to field formations to collect Rs 2 lakh crore till March 31. It is also goading public sector undertakings (PSUs) – leveraging its majority ownership and control over them – to settle their disputed demands under the scheme.

The extent of desperation may also be seen from the government’s decision to relax terms to cover cases of searches and seizures, including deposit of unaccounted cash in the follow-up to demonetization.

Similar efforts made in the past failed to deliver. A scheme offered in 2016 to resolve disputes pending before the Commissioner-Appeals had attracted over 10,000 applications amounting to tax arrears of a mere Rs 1,235 crore. Under the income declaration scheme (IDS) launched during June 1-September 30, 2016, a meagre 64,000 persons, or 0.7% of potential hoarders of unaccounted cash, declared their undisclosed income. The Pradhan Mantri Garib Kalyan Yojana [PMGKY] launched during December 16, 2016 to March 31, 2017, too, was a flop, with a tax collection of less than Rs 4,000 crore.

The use of amnesty schemes (by whatever nomenclature one may call them), and that too so frequently, is an unhealthy trend. Apart from causing substantial loss of revenue, this sends a wrong signal to those prone to tax avoidance. Even worse, it causes a sense of resentment amongst honest taxpayers who disclose their income and pay taxes in full as per the law of the land and in time. If the status quo continues, i.e. instead of penalizing evaders, they are rewarded through amnesty schemes, then there is every possibility of even the honest taxpayers joining the ranks of evaders. What then is the way forward?

While continuing to deal with honest taxpayers in a ‘fair’ and ‘transparent’ manner (and even rewarding them), when it comes to dealing with evaders, the government should take an ‘uncompromising’ stance. Instead of coming out with offers of waivers or concessions, the agencies (I-T, Enforcement Directorate, etc.,) should vigorously pursue such cases.

A major factor that often prompts the government to acquiesce is delay in delivery of orders by courts. In this backdrop, there is dire need for expediting judicial reforms and augmenting capacity so that delays are avoided and judicial pronouncements come in fast-track mode. If court decisions come fast, the tax department will be able to recover dues in full without having to give unwarranted concession to taxpayers. All the three arms of the government — executive, judiciary and legislature — need to act in unison to make this happen.

(The writer is a Delhi-based policy analyst)