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nirmala Sitharaman

Will Nirmalaji honour her promise

The government tendency to resort to tax terrorism and coercive recovery of the most unjust and untenable tax demands continues unmitigated. Unrealistic and over ambitious tax collection targets are set by Delhi, and harsh recovery measures are then unleashed on tax payers by the field officers. It was thus surprising to hear the Finance Minister’s analogy of the elephant and the rice field in her budget speech and also in her post budget interview. She said that it is better that an elephant is satisfied with a small offering of rice and does not enter the paddy fields, which will destroy much more rice and perhaps the paddy field itself. The elephant here being the tax department of the government and the paddy field being the hapless enterprise, which is easily trampled and crushed by the government, if it chooses to. The FM further emphasised the government’s intention, saying that what the people will give in the form of tax, the government thinks that is enough, but if the government does not get that, it is not going to make the mistake of being the elephant and hurting the public, where the government will not get anything. She interestingly said that the government will do with what it has been able to collect as tax from the public.

This unusual statement of the FM, is music to the ears of the harried and harassed tax payers, always at the receiving end of coercive recovery by the tax department, unwilling to wait for the outcome of the illegal demands in appeal, whereas per historical statistics, it loses most of its cases. But then, this government has generally been heavy on promise and light on performance and thus whether this promise of the FM, that the government will be satisfied with what it gets, will percolate down to the last man in the chain viz. the tax recovery officer, or not, is a huge question. The question is, that will this elephant which has a never ending hunger and appetite be really content with what it gets, particularly at a time when our fiscal position is weak, there is an overall slowdown in the economy and despite that the government has set an ambitious tax collection target for the FY 2019-20, which implies a continued witch hunting to recover even the most disputed taxes.

The fact is that there is logically a direct correlation between economic growth and tax collection in a nation. The Indian economy has slowed down and will continue to do so in the next two quarters, before it starts to pick up and in tandem with it, so will be the ups and downs in the tax collection. But at present a slowdown in the economy and in tax collection, stares in our face as is evident from the crisis across the economy and particularly in sectors like automobiles, auto ancilliary, NBFCs, banks, telecom, real estate, steel etc., which are heavy tax payers of direct and indirect taxes, but are struggling at the moment. It began last year and has continued quarter after quarter. This slowdown is reflected in the failure of the government to meet its tax collection targets last year, such that GST collection was short by 22% and despite all the tax terrorism and forced recovery of untenable demands and bureaucratic high handedness, even the income tax collection fell short of its target by 8.4%. And this was after the controversial instruction of the CBDT to its officers, to ensure tax collection at any cost.

The economic slowdown has got aggravated in the meanwhile and the tax collection in the current year will certainly not meet its ambitious growth target of 18%. Moreover, the budget has spared the struggling household sector and the stressed corporate sector of any additional taxes and the hike in surcharge on high income earners will certainly not compensate the imminent dip in tax collection due to an economic slowdown. If tax collections fall short of the government’s most unrealistic growth of 18% this year, then there is every likelihood that the FM’s promise will be forgotten and the elephant will trample and crush the rice field.

The reality is that both income tax and GST collections are much below their targets, which in the present economic conditions are very optimistic. Much as the government will indulge in financial jugglery including off its balance sheet borrowing, it will not be able to meet its targets and a fiscal slippage is most likely to occur. But there is a limit to such jugglery by the government and coercive recovery too, at a time when the economy is in a slowdown mode. The biggest threat to tax payers is that the government will unleash coercive harsh recovery measures and that will be fatal to may enterprises, which do not have the unlimited financial capability to meet the coercive tax demands of the government, year after year.

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