Gross tax revenue has also jumped 29% from pre-Covid levels in the first four months of this financial year. (representative image)
Even if “all businesses” affected by retrospective taxation are “positive” in settling their disputes under special exemptions given by the government, the Center will ensure indemnity coverage in cases where not all “separately interested parties” have committed Revenue Secretary Tarun Bajaj told FE to stop litigation after settlement of disputes. Cairn Energy – the government had raised 98% of the more than Rs 8,100 crore collected as retrospective taxes from the Scottish energy company – was on board to resolve the tax dispute, he said.
The scheduled end of the GST compensation period on June 30 next year could lead to a revenue shock to most state governments, the official argued for complete paucity of resources to expand the mechanism, but added that the increase in GST revenue This has happened through rationalization of rates. The situation is likely to improve with structure and better compliance. “Where is the money? The income from the cess till the end of March 2026 is required to finance the (special credit facility) deficit for the financial years 21 and 22,” he said.
The GST compensation mechanism ensures an annual revenue growth of 14% for the states for five years till June 2022. The designated termination fund is well below the required level in FY21 and the same is expected. There is a huge loss in the current financial year. All states are looking for expanded coverage.
Bajaj said he is confident that the Centre’s gross tax-to-GDP ratio will improve to 12% of GDP in the medium term (it was only 10% in FY21) and that fiscal dynamism will be 12% from the current financial year. will be greater than the %. . . He said that higher revenue for the Center would strengthen devolution to the states.
On tax revenue growth more than overall economic performance, Bajaj said a combination of several factors, including a trend towards greater formality – and better compliance, led to increased revenues. While many analysts feel that the formalization process that wiped out thousands of units from the informal sector has been forced and may be a drag on growth, the revenue secretary has a more nuanced view. “If there was only a formality, personal income tax would not have grown by 62% in a year to Rs 2.88 lakh crore till September 23 (this financial year). This is much higher than the normal increase which is 10%. “We have collected a lot of information (on spending patterns and potential income profiles based on sales) on taxpayers, and we are reproducing it to them, making them pay their taxes voluntarily (in full). have ensured better compliance,” he said.
Bajaj said the gross tax revenue will be Rs 22.17 lakh crore more than the budget target for FY22. Separately, another official told FE that the Centre’s net tax revenue could exceed the budget target in FY22 by around Rs 2 lakh crore, to cover the additional fiscal cost of the stimulus measures announced by the government so far. .
On the agenda of the two groups of ministers set up by the GST Council to establish a roadmap for raising revenue, the secretary said: on product one and slab and compliance issues. Not that from 11% (neutral current rate on income), the RNR will be increased to around 15% immediately. This may not be the best solution. All the questions are on the table and it is up to the ministers to raise them at their discretion.
According to Bajaj, the expansion of the taxpayer base for GST has also helped in increasing the direct taxes. “Since GST information is shared with the Income Tax Department, it is difficult for taxpayers to avoid or underpay taxes. Currently, there are up to 1.3 crore of GSTINs (unique number assigned to each taxpayer), up from 60 lakhs in 2017, when GST was introduced.
The GST Council, as it took place in Lucknow on 17 September, set up two groups of state finance ministers: to raise revenue.
Gross tax revenue jumped 29% in the first four months of this fiscal, even from pre-Covid levels (the same period in FY20). If this rate of growth (above FY20) continues throughout this financial year, the gross tax collection will increase to 25.93 lakh crore in FY22. This will take the tax-to-GDP ratio to 11.6% in FY22. , the highest since FY08, much higher than the budgeted level of 9.9%. This, of course, assumes that the nominal GDP for this year will touch the budgeted level of Rs 222.87 lakh crore, registering an annual expansion of 12.9% over the provisional estimate for FY21. Fiscal mobility will also reach 2.2 during FY22.
Bajaj said the government has received a positive response to the draft rules for settling retrospective tax disputes for indirect transfer of Indian assets and the final rules will be issued soon.
According to the draft regulation, for the government to quash the tax claim and reimburse the amount collected without interest, the party concerned must withdraw all pending disputes not only in national courts and arbitrations under bilateral investment treaties. Ensure that files filed by any “different interested party” including the beneficiary owners are withdrawn. This would mean that Vedanta would have to commit to withdraw the arbitration filed under the India-Singapore tax treaty so that Cairn Energy could benefit from the facility offered by New Delhi. Vedanta has sought a compensation of around Rs 5,000 crore for the significant fall in the value of the stock due to a tax notice of Rs 10,250 crore to Cairn’s subsidiary Cairn India. After this Cairn India merged with Vedanta.
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