Revenue Secretary Hasmukh Adhia said the reason for projecting low growth rate in the indirect tax collections for fiscal 2017-18 are three fold — transformational change to Goods & Services Tax (GST), sharing of Central cesses with States, and uncertainty over compliance level in the first year of GST. In an interview to BusinessLine , Adhia said the banking cash transaction tax, suggested by the committee of Chief Ministers on demonetisation, will have to be studied. “We will have to see whether the BCTT, in its earlier implementation, discouraged people from withdrawing cash or did it result in more people keeping cash at home to avoid the tax?” Excerpts:
The revenue projected in Budget from indirect taxes is lower than that for direct taxes...
Post demonetisation, people are convinced about the government’s efforts to curb tax evasion, as is evident in advance tax collections for this fiscal. I am sure people would like to declare more realistic income compared to what they did so far. So, we expect some buoyancy both in terms of increase in the number of taxpayers and the volume of tax revenue. The reason for the low growth rate in the indirect tax collections are three fold: first, we are going for a transformational change — GST, where in there will be swapping of tax revenue and we don’t know how revenue will come to the Centre. Second, all cesses for which the income comes to the Centre will also be shared with States, thus, there will be some fall in the Centre’s income. Third, this being the first year of GST, we are not sure about the compliance. So we have been very cautious in the projections.
Will services have a multiple rate structure under GST?
It has to be decided by the GST Council, but for most items there will be one rate. For some items that have abatement for a valid reason, a lower rate may have to be introduced. For example, all three modes of transport — rail, road and civil aviation — use petrol or aviation turbine fuel. They receive abatement for this. Since petroleum is not part of GST, we will have to give a lower rate to them.
Another item of abatement might be in real estate. Land is not part of GST. So we will not be able to charge GST on the cost of land and it may need some abatement.
The Budget has not provided estimates for compensation for revenue loss from GST?
The GST Council has developed the compensation mechanism and there is no need for separate compensation by the Centre.
Have the concerns of excise and service tax association regarding GST been addressed?
They have some apprehensions that their work will get reduced and their positions may get reduced. In a meeting of officers of CBEC, the Finance Minister has said this will not happen and neither will their promotional opportunities be impacted.
What led to the exemption of foreign portfolio investors (Category I and II) from the indirect transfer provisions?
This is for genuine small investors who are investing in India-based funds. The provision came in 2012, but the detailed guidelines on its application in indirect transfers were not decided. The recent circular brought to our notice cases where a genuine small investor invests in an India based fund, which in turn invests through FPIs into Indian stocks. The total quantum of the fund may be 100 per cent, but the small investor may have only six per cent of the stocks. Our rules say over five per cent will be covered.
So if the investor transfers his share in the India based fund to some other investor then this would be covered. But, this is not what we actually meant to do. Without any capital gain coming out of this, the investor will have to pay capital gains tax. Capital gains tax is already accounted in the valuation of the fund. So, if the shares portfolio are changed, the fund will pay capital gains tax.
Of the 1 crore accounts with suspicious cash deposits, the Central Board of Direct Taxes is verifying 18 lakh accounts in the first phase. When will the next stage start?
In the first phase itself we are verifying an apparent mismatch between the income profile and the deposits made. These are big cases. But, once we do more advanced data analytics, then the subsequent phases will start. It will take at least one to two years.
Will you consider reintroducing BCTT, as suggested by the interim report of Chief Ministers?
The report came very late when we were in advanced stages of Budget-making. We will look at it now. But, we have to consider two things. First, how was the experience when the BCTT was in force for a period of three years. Did the BCTT, when it was earlier levied, discourage people from withdrawing cash or did it result in more people keeping cash at home to avoid the tax?.
It may have an adverse impact also. For instance, a small trader may get ₹ lakh daily and deposit it in the bank on the same day and withdraw it in a few days later when he needs to pay the wholesaler. But, if he has to pay a tax to withdraw it every time, then he may not choose to deposit it.
The Budget has proposed a penalty on cash payments above ₹3 lakh...
Yes, the penalty is an amount equal to the payment made in cash and will be levied on the person wanting the payment in cash. It will be a big deterrent and is based on the recommendation of the Special Investigation Team.
What about the SIT recommendation to cap cash holding at ₹15 lakh?
It is still under consideration, but if someone is holding illegal cash, we already have the power to search and seize. However, if it is legal cash that somebody is keeping in the business premises, is it a good idea to start checking the cash book and treasury chest of each and every business establishment? In terms of enforcement, it creates challenges for us.
Most companies expected the Budget would announce an across the board cut in the corporate tax rate…
The effective tax rate for the top 300 companies is lower than that for small companies with profits less than ₹1 crore. So whose tax liability needs to be reduced? We had limited resources and we used it for the micro, small and medium companies. With this decision 96 per cent of the companies are covered now. While this would result in a revenue loss of ₹7,200 crore, a one per cent reduction across board would have cost between ₹18,000 crore and ₹19,000 crore. This will happen eventually, but it will depend on our savings from the phase-out of exemptions that starts from April 1.