Income-tax needs rationalisation, not reduction: Ashutosh Dikshit, Deloitte

It is still early days yet but one would expect a positive outcome from the e-assessment scheme.

ETMarkets.com
The government should not try and be over ambitious on these tax collection targets because it results in unnecessary pressure on the tax authorities for collecting unrealistic targets, says Ashutosh Dikshit, Partner, Deloitte Touche Tohmatsu India LLP. Excerpts from an interview with Mythili Bhusnurmath of ETNOW.

The government is going to fall abysmally short of the revenue targets that it had made in July 2019. How can the government budget its tax revenues when the macroeconomic scenario has changed so completely? Against the normal growth of 12% budgeted that time, we just have 7.5%. How do we budget for the next fiscal?
This year’s Budget numbers when they finally come out will have many variables which are going to impact and all of them are going to impact the tax revenue numbers negatively. One, of course, is that the base on which the tax revenue was earlier projected for 2020, that base itself was not achieved.

Second, the corporate tax reset which happened in October and which was passed in December. If we factor in both of these into the Budget numbers and do not take anything else into account, that straight away will lead to a reduction of 1.8% in tax collections as per the GDP. If we take the GDP that is at rate of 8% nominal growth, rather than the 12% which was projected in the Budget, it is going to be a very heavy shortfall.


Once we have the collection, how do we go forward and look at what the revenue collections are going to be for 2021 and how do we make those projections? The first thing is that GST is now a very big component of the collections and the policy decisions lie outside the Budget.

The government will have to take a realistic view about what the GST collections are going to be and then they will also have to take into account that the corporate tax reset definitely will engender a much lower increase in taxations on this lower base because the tax rate will now be around 25% as compared to earlier taxes of somewhere between 33% to 35% depending on the surcharge and cess. So, these two things will have to be taken into account while making the projections for the coming year.

Definitely the government should not try and be over ambitious on these targets because it results in unnecessary pressure on the tax authorities for collecting unrealistic targets.
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You referred to the cut in corporate tax and though that was part of the long-term plan, the fact is it is going to impact the government’s revenues. Increasingly, corporate tax revenues are going to come down. At a time like this, how valid is the clamour for a cut in the personal income tax rates? What can we do to increase tax revenues?
On the personal income tax front, one would look more at rationalisation rather than a reduction. By rationalisation I mean that today the personal income tax slabs see from 5% straight to 20% and 30% slabs, Then there are multiple surcharges which then take up the top rate to over 40%. I would be looking in this budget not so much at a reduction of personal income tax liabilities, though to some extent, there would be reduction at the lower end, but definitely I would be looking at a 10% rate because the jump from 5% to 20% is quite anomalous.

Also what happens to companies in the new gig economy? They are not going to make any profits. How do you tax them because after all they are utilising the services given by the larger economy? There must be some way to get some tax revenue from them.
Well, definitely not on the basis of a personal income tax but we have to look at the way these gig economy companies function. One way perhaps if not directly collecting taxes from them on the income tax front is that they are bringing together a large number of independent operators on a platform who would be part of this gig economy.

Perhaps using them as some kind of a monitoring tool for tax reductions with regard to the operators who are functioning on this particular marketplaces. That could be one way of enhancing the tax space and broadening it.

Government has been taking a long time about simplifying income tax laws because they are hopelessly convoluted at the moment. What is holding the government from making the Direct Tax Code (DTC) public and agree to some of its recommendations?
If I look at personal income tax or income tax in general -- both corporate and personal -- a lot of the challenge which we face today is in the simplification of the procedures. It would be welcome if those recommendations in the DTC with regard to administrative simplifications are brought into the public domain and are implemented.
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But irrespective of that, the government has taken certain initiatives especially the e-assessment scheme which has been introduced where it is supposed to reduce the interface between tax payers and the tax administration. It is still early days yet but one would expect a positive outcome from that with respect to taxpayers interface and the ease of doing business.
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