High tax collection- tax payer should also be greeted and encouraged.

[C.A. DEV KUMAR KOTHARI]

High tax collection:

It is heartening to note that there has been an unprecedented collection of tax revenues in the financial year 2010-11 as can be noticed from the following figures analyzed from letter of the Finance Minister to the Chairman CBDT:

Initial aggregate target of  Rs.7,45,000  crore,

Revised target                    Rs.7,82,000 crore,

 Actual total collections       Rs.7,90.000 crore

Tax collection- the payment made by taxpayer:

Income-tax collection depends on income earned:

Tax collection is dependent on how much tax is paid by taxpayers. This in turn depends on the amount of income earned by taxpayers.

A major part of tax collection is voluntarily by way of the following:

1. Advance tax payments by taxpayers
2. Tax deducted at source from payments made to taxpayers
3. Self assessment tax paid by tax payers.
4. Tax payment on regular assessment.
5. Tax recovery by tax officers by various means including coercive measures

We find that tax collection under categories a,b,c and d are voluntary payments by tax payers. There is not much role of the tax officers in such collection. Tax recovery has been better due to growth in economy resulting into higher turnover and income and due to better business environment and earnings and prospects of earnings.

Taxpayers are real contributories:

Taxpayers are real contributories for better tax collection. Therefore, persons to be greeted for better tax collection are, to the maximum extent, the taxpayers because their role is much greater than the role played by tax officers.

The persons who also need to be greeted are:

1. Trade, industry and business who have increased production and profits and have also increased opportunities of earnings.
2. Employers who have generated employment and provided opportunity to earn so that employees can also pay tax. These include government, trade, industry, and service sector. A substantial increase is also by way of income tax collection from salary due to huge increments which have been given by employers.

Collection by way of coercive measures- a short term collection:

The credit for this goes to tax officers only. It is experienced that high pitched assessments have been framed and  a large portion of tax collections have been made by adopting  premature, unfair and unjust means of coercive measures in many cases. This is a short-term collection, because on disposal of appeals and other proceedings it will be found that tax so collected is to be refunded. This has caused great degree of dissatisfaction amongst many taxpayers and many are having feeling of harassment by tax officers.

Real contribution of Tax Officers:

Tax officers can help taxpayers to earn more and pay more if they properly treat taxpayers by giving proper respect to them, give proper care, and regard to their time, make proper assessment without harassing and without making bogus, biased and illegal additions. However, unfortunately whenever a case falls under scrutiny proceedings, the taxpayer is treated and suspected as a tax evader and he is abused by making very seriously ill willed statements on his transactions just to make illegal and biased additions. 

After raising huge demands in high pitched assessments, seriously disputed tax dues are also collected by adopting coercive measures even in premature conditions. Many times tax officers are found to threaten the taxpayer to force closure of business unless the disputed tax is not paid by them and they take many such actions which can cause closure of business. All such actions  are  not conducive to better tax collection. This is also against the policy of government to treat taxpayer with a presumption as to his honesty. In fact one a case is taken up for scrutiny, the officers have prejudiced mind that the taxpayer is dishonest. This is seriously wrong and should be considered and viewed seriously while evaluating performance of tax officers.

Recent greetings by the Finance Minister to Aaykar Parivar:

In a letter to the chairman of CBDT the honorable Finance Minister while sending greeting on commendable collections  has written as follows (with highlights added by author):    

My Dear Sudhir

1. There has been an unprecedented collection of tax revenues in the financial year 2010-11. Against an initial aggregate target of Rs.7,45,000 crore that we revised to Rs.7,82,000 crore, the total collections stand at nearly Rs.7,90.000 crore. This has greatly strengthened our efforts for fiscal consolidation that is a key imperative for growth of our country’s economy and the socio-economic developments of its people.

2. At the beginning of the year, we set a target of direct tax collections of Rs.4,30.000 crore. I have noted with great pleasure that our ‘Aaykar Parivar’ has succeeded in meeting the revised target of Rs.4,46,000 crore and that too after issuing a record number of around 85 lakh refunds totaling around Rs.74,000 crore, during the year. The refunds and other taxpayer-friendly initiatives taken by CBDT are important milestones in good governance that encourage voluntary tax compliance.

   3. I would like to convey through this letter, my heartiest congratulations to all members of our Aaykar Parivar for this magnificent performance. I am confident that they will succeed in fulfilling the growing expectations of our country for an innovative and responsible administration and will continue to provide a valuable partnership to India’s growth story.

                   4.     My commendation may be conveyed to all officers and staff under Central Board of Direct Taxes appropriately.

(Pranab Mukherjee)

Comments of author:

The question is whether income- tax collections can improve without improvement of tax base  that is (a) taxpayers and (b) income of taxpayers? The clear answer is NO.

The honorable Finance Minister could have encouraged tax payers also by appropriately hinting to their support and co-operation extended by them and also in their achievement in earning more and paying more income-tax. 

Forced higher tax collection – innovative practices adopted:

 Forced higher tax collection by  (a) prescribing higher rate of TDS (b) not allowing lower TDS (c) forcing taxpayers to pay seriously disputed tax demands, (d)  forcing taxpayers to pay excessive advance tax by exercising undue influence by the tax authorities, and many such other measures adopted by tax officers should not be regarded as  innovative and responsible administration. In fact in many cases excessive tax collections have been made by adopting such practices by tax officers. As a result, we find increasing proportion of tax refunds.

Related article:

Readers may refer to another article by the same author titled as “HIGH-PITCHED ASSESSMENT AND DISPERATE RECOVERY OF DISPUTED TAX” and “ANALYSIS OF INCOME TAX REFUNDS DURIGN FIRST FORTNIGHT OF April 2011” for many related aspects about tax collection and refunds.