While economic slowdown has crimped revenue growth in the past few years, the dispute-ridden tax administration is equally to be blamed. The Centre’s tax-to-GDP ratio, which had come close 12% during FY08 following scorching growth of over 9% before the Lehman crisis, has been gradually falling and touched 9% by FY12. It now stands near 10% despite all efforts to rev up revenue collection. The problem, as the Tax Administration Reforms Commission (TARC) headed by Parthasarathi Shome has pointed out, is in lax administration and mounting disputes. Close to 4 lakh tax cases are locked up in various courts even though the success rate of the taxman is one-fifth or less in case of direct tax cases and close to a tenth for indirect tax cases. Not surprising, tax arrears are on the rise, leading to lower realisation from taxpayers.
On top of this, the retrospective taxation and other deterrents have dented investor confidence. This, in turn, limits the government’s powers to shore up revenues. While advocating scrapping of such regressive tax policies, Shome is right to recommend that the tax department needs to restructure itself. While carrying forward major reforms such as GST, it has become imperative to cleanse the tax administration as well.