With drought forcing the government to increase its spending, corporations and salaried individuals can expect a tougher tax regime, with Finance Minister Pranab Mukherjee revising this fiscal's direct tax collection target to Rs 4,00,000 crore from Rs 3,70,000 crore mentioned in the Budget last month.
The 8 per cent increase in the direct tax target, despite the slowdown, is expected to come from more intensive recovery efforts. "The direct tax base in India is still small and there is substantial tax evasion or underpayment of taxes. The tax net, therefore, needs to be deepened further," Mukherjee said at a conference of chief commissioners and directors-general of income tax in New Delhi.
The total tax collection for the fiscal is now estimated at Rs 6,71,079 crore, up 6 per cent growth over the revised estimates of Rs 6,27,949 crore for 2008-09.
The government is already facing a challenge on expenditure, with heavy commitments on stimulus spending and social sector outlays that are expected to see the fiscal deficit touch 6.8 per cent of gross domestic product. Direct taxes, which account for the bulk of tax revenues, have been growing in double digits over the last few years but slowed to 16.5 per cent in 2008-09 from 35 per cent the year before, owing to the economic slowdown.
Mukherjee conceded the target was "challenging" given the current economic slowdown but emphasised that tax rates should remain moderate and the multiplicity of taxes, tax exemptions and deductions should be phased out to improve tax compliance.
Mukherjee also said the government would put the new direct tax code in the public domain on Wednesday seeking views and comments. The direct tax code is considered a major step forward in tax reform and is expected to simplify the country's tax laws. "While drafting this Code, the best practices in the world have been studied and incorporated," Mukherjee said. The draft code is expected to be tabled in the winter session of Parliament.
