Taxing times PDF Print E-mail
Wednesday, 16 May 2012 00:40
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Disputed income tax amount doubles in a year!
Vodafone! That’s the immediate thought which comes to mind when you see the amount of income tax dues under dispute has risen from R2,43,603 crore in December 2010 to R4,36,741 crore in December 2011, going by the figures given in Parliament last month. But Vodafone’s tax liability, even if you include the penalty, is around R25,000 crore. Add another R10,000 crore for SABMiller, AT&T, and others affected by the retrospective tax amendment. So where’s this coming from? The bulk of the increase, it appears, comes from the sharp hike in cases involving transfer pricing disputes—one of the cases, by the way, does include Vodafone group company 3GSPL, which has been slapped with a R8,000 crore tax notice. Citibank, similarly, has been give a R2,500 crore tax notice. While the taxman insists its demands are legitimate, the sharp hike is surely a sign that a lot is wrong with India’s tax system? Most other tax jurisdictions have much smaller tax disputes while, in the last one year, India has added 40,000 more tax disputes. Income taxes under dispute rose from R59,927 crore in 2005-06 to R66,536 crore in 2009-10 before ballooning to the current levels.
If there was an equally sharp rise in the disposal of these disputes, it wouldn’t be as much of a problem but pending cases are up dramatically—in 2010-11, for instance, the income tax tribunal was able to dispose off only 27% of the cases it was expected to. The R2.9 lakh crore locked up in pending cases in 2010-11, the CAG points out, was 109% of the revised revenue deficit for the year. What lends credence to the theory of the overzealous taxman is that, of the R75,169 crore of tax refunds in 2010-11 (that’s a seventh of tax collections!), the interest component was R10,499 crore—that is, the taxman books too many cases, keeps firms locked in dispute for years, and ends up paying 13-14% interest on the refunds. Juxtapose this with the R4,36,741 crore locked up in income tax disputes, and the enormity of the problem becomes obvious.
The flip side of this, the CAG points out, is that in its sample audit of direct taxes, it found the taxman had calculated the tax due incorrectly in 5.6% of cases and this lowered the tax demand by 17.5%! Perhaps why tax buoyancy has fallen dramatically from 2.5 in 2006-07 to 0.7 in 2010-11. The taxman claiming it is right in taxing Vodafone is one thing (even though we disagree) but this is something to be equally concerned about.

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