Tax reforms, higher compliance to sustain growth in direct tax revenues: Revenue Secy

The NDA government’s last budget before the polls, though interim in nature, has gone ahead with some big-ticket announcements for farmers, middle class and unorganised sector labour. While the proposals have found appreciation and support , it has also increased government’s expenditure and impacted country’s fisc and delayed fiscal consolidation programme. In a year when controlling expenditure is not a concern, revenue need to be robust. Revenue secretary Ajay Bhushan Pandey tells Anjana Das and Subhash Narayan of FC in an exclusive interview that a realistic growth revenue in direct taxes has given the government leeway to step up expenditure a bit.  The budget, he says, gives targeted benefits both from expenditure and revenue side and yet balances public accounts. Pandey has to manage tax revenue in the scenario of a GST revenue falls short of target in FY19 by Rs 1 lakh crore while direct tax exceeds by Rs 50,000 crore.  For 2019-20, out of total estimated Rs 11.66 lakh crore indirect taxes, GST revenue has been pegged at Rs 7.61 lakh crore. For 2019-20, out of the Rs 13.80 lakh crore direct taxes, the government has estimated to raise Rs 7.60 lakh crore from corporate tax and Rs 6.20 lakh crore from income tax both higher from current fiscal. Other indirect taxes apart from GST fared better in 2018-19: Gross tax revenue for 2018-19 is estimated to decrease by Rs 23,067 crore, primarily dragged down by a Rs 1 lakh crore shortfall in GST collections on the indirect tax front. GST collections have fallen short of the budget target by Rs 1 lakh crore, with revised estimate for 2018-19 pegged at Rs 6.44 lakh crore as against the Budget target of Rs 7.44 lakh crore. The figures are challenging but Pandey is hopeful with higher compliance and focus on revenue considerations on the GST side , acheiving the targets won't be imposible as well even in an election year. Excerpts:

Why the government has offered rebate to middle income groups and not tinkered with exemptions threshold and tax slabs?

Let us understand that budget has offered targeted benefit both from expenditure and revenue (income tax). This is because it gives tax relief only to those people whose deserve the most. And the rebate mechanism exactly like that as it gives benefit only to those with taxable income of upto Rs 5 lakh. This is different from exemption as exemption mechanism is universal that can give benefit even to higher income individuals. Also, with a limited kitty, this is the only way you can maximise the benefit. We also have to understand this is merely an interim budget.

The rebate mechanism proposed in the budget offers income tax relief only to lower income groups while a large portion of the middle-class tax payers has been kept out from it. Does this go against the middle-class friendly picture being created about the budget?

We fixed the Rs 5 lakh level for giving rebate on income tax with the idea that this section of the middle-class tax payers has to be given maximum benefit. But we must understand that Rs 5 lakh is taxable income level for claiming rebate. People with even higher income between Rs 6-8 lakhs per annum can also get rebate benefit if they bring down the taxable income through investment incentives available under section 80 C, 80 D and on national pension schemes and interest on home loans. But if even after exhausting all benefits, the income is higher than Rs 5 lakhs, then tax has to be paid as per the tax slabs operating at present.

But don’t the budget proposals create distortion in the tax system where after exemptions the first tax slab starts at a high level of 20 per cent rather than at a more moderate level of say 10 per cent?

According to me there is no distortion if the current tax slab is looked with the perspective of an individuals’ appetite to invest tax saving instruments. A person earning more than Rs 5 lakh is relatively more capable of taking advantage of the tax breaks available on investments made into Section 80 C and 80 D instruments, interest on housing loan, national pension scheme. In fact, the budget proposal promotes investment by this group into tax saving instruments. With these investments, even individuals with gross salary of Rs 7-8 lakhs can take advantage of the full rebate and secure own and future of the family.

Going ahead, can we look at different direct tax structure?

Let us understand that it was a mere interim budget. And in this you can only address the urgent needs. Suggestions are invited before making of the full budget. So, at the time of preparation of full budget, lots of suggestions would be invited and examined and then decisions would be taken.  Even with regard to corporate tax, any decision to change the rate would only be decided at the time of making the full budget.

The interim budget proposals have increased expenditure that has to be matched by higher tax collections. Do you think current buoyancy in direct tax collections would be sustained?

Yes, because in last three years and particularly after demonetisation, and various tax reform measures, we have seen an increasing trend in tax collections. In the year of demonetisation and year after that, we have seen growth trend in direct tax. First the tax grew by 15 per cent, then 18 per cent, this year it has grown by 20 per cent and in FY20 we have kept direct tax collection growth at 15 per cent. The GDP growth in nominal terms has been about 11 per cent. So, the tax buoyancy has ranged from 1.5 to touching nearly 2. This is a good trend. On the GST side also, due to a series of steps to ease compliance burden and rate rationalisation, revenue trends are moving upwards. Last year the average revenue was Rs 89,000 crore and this year it has been Rs 92,000 crore. But on the GST side we will need to observe for some more time. We have revised downwards the GST numbers for current year because we wanted to be realistic. But for next year 14 per cent growth has been estimated. Instead of having some kind of Inspector Raj or some kind of Raid Raj, we have to move towards a system that encourages.

With several changes in GST rate, can we expect a pause before more rationalisation in takes place?

In last two GST Council meetings when matter came for reduction in rates on certain items particularly cement, a view was taken that we will have to watch the revenue trend for the next few months. The whole idea is that in 28 per cent should only have luxury and sin goods. Few items now remain that may not be luxury goods or sin items, so appropriate view will be taken once we see a stable trend in revenue.

Expenditure is rising by a whopping Rs 3 lakh crore next year. Does this generate pressure on the revenue collections?

Budget has balanced expenditure with revenue. Expenditure has been determined based on the revenue numbers we have given. So, this is a realistic figure. Because when it came down to revise our budgetary estimates for the current year, we have given the lower figure.

What is the progress on Direct Tax Code (DTC)? Will the full budget take inputs from it?

For DTC, government set up a Committee that is expected to submit its report to us in three months’ time by April. Yes, you can expect it to be ready by the time of the next budget because of the timeline. But first let the report come, then it will go through legal vetting.