Direct tax arrears touched a staggering Rs 2.49 lakh crore last fiscal, and of this, an amount of Rs 1.43 lakh crore is seen to be difficult to recover. The tax arrears are tax demand raised by the revenue department but not realised along with the amount of tax blocked in litigation and appeals at various levels. About Rs 41,000 crore direct tax arrears were locked up in litigation till March 2010.
The reason as to why tax arrears are difficult to recover is that in some cases there are no assets for recovery— like the Rs 71,000 crore in the case of Hassan Ali— and in some cases the court has to give a direction like the Rs 35,000 crore arrears associated with Harshad Mehta scam, a finance ministry official told media.
There may be a case of liquidation or the tax amount is pending a decision at the Income Tax Settlement Commission or the Board for Industrial and Financial Reconstruction (BIFR).
The total amount of direct and indirect tax arrears if recovered could overshoot the budget target by almost 40% (Rs 2.93 lakh crore) of Rs 7.46 lakh crore that the government aims to mop-up in this financial year.
The indirect tax component of arrears was Rs 44,212 crore. The tax arrears have been adding up over the last three years. While the direct tax arrears stood at Rs 2.13 lakh crore till March 2009, the indirect tax arrears was Rs 33,790 crore in the same period.
The amount was way less in 2008 with the income tax and other direct tax arrears being at over Rs 1.3 lakh crore while the customs, excise and service tax arrears were about Rs 30,000 crore.
The government aims to recover Rs 13,906 crore of direct tax arrears and Rs 3,250 crore of indirect tax arrears in the current financial year. However, on the direct taxes front, arrears of Rs 4,400 crore from this amount has already been recovered.
The total tax collection target for the current financial year is Rs 7,46,651 crore where the amount of almost over 17,000 crore would be a bonus as it has not been separately accounted in the receipts budget.
The target for recovery of tax arrears pertaining to direct and indirect taxes is fixed at the beginning of the respective financial year.