Tax refunds under scanner

NEW DELHI: The revenue department seems to be returning a huge chunk of the tax that it collects with interest thereby upsetting the calculations of finance ministry officials.
Now officials are seeking to term interest on refunds as expenditure and thus bring it under the purview of Parliament and the Comptroller and Auditor General (CAG). There has already been an exchange of correspondence on this count between the finance ministry, CAG and the Government Accounting Standards Advisory Board.
Tax refunds this April grew by a whopping 89 per cent over the same month last year, resulting in negative collection of corporate tax.The revenue department had in April reportedly returned Rs 6,365 crore of tax collected of which Rs 5,412 crore was corporate tax.
``In most countries, interest on refunds is considered as expenditure and thus would form part of the appropriations account. This would ensure accountability. But in India, advance tax is accepted to inflate receipts and achieve targets and then public money is spent on interest while returning this inflated tax. The officials have to be made accountable,'''' said a finance ministry official.
Even the corporates are interested in playing along with the revenue department because the interest on refunds is as high as eight per cent which is not available for most short-term deposits. Hence, finance ministry officials feel that the corporates have used this refund method as a good ``treasury management tool''''.
The officials also point out that by terming interest outgo as reduction in tax receipts, there is lack of ``budgeting and accounting transparency. This has also led to a certain amount of white washing of black money.''''
In the 2001-02 budget, there was an attempt to include the interest on ``excess tax collected'''' as part of the demand for grants. This would have ensured the classification of interest on tax refunds as expenditure of the department that needs to be voted upon by Parliament. Later, this ``head'''' could also be audited by CAG.
In the 2001-02 budget documents, for direct taxes Rs 92 crore was the interest on refunds of excess tax. But within a few months, in mid-2002, the revenue department managed to take this out of the demand for grants showing this merely as ``reduction in receipts''''. This has led certain finance ministry officials to point out the ``arbitrary'''' nature of the operation.
The budget estimates of revenue collection have over the years been drastically cut in the revised estimates, with the actual collection being even lower. In the Reserve Bank''s bulletin for May, the deviation between budget estimates and actual revenue receipts is shown to be negative 2.6 per cent for the 1990s decade and negative 5.4 per cent for 2001-02.