The estimates of indirect taxes foregone in fiscal year 2015-16 are down sharply — by almost 70 per cent — Budget documents have shown. The fall is due to a change in the treatment of concessions to payers of excise and customs duty, and a new methodology to calculate the revenue impact of these incentives.
Last year’s Budget documents had projected that the revenue impact of tax incentives on excise and customs duty for fiscal 2015-16 would be ₹4,82,489 crore – ₹2,24,940 crore due to excise concessions and ₹2,57,549 crore due to customs concessions. That estimate has now been revised down to ₹1,48,442 crore in the 2017-18 Budget documents — ₹79,183 crore due to excise concessions and ₹69,259 crore due to customs concessions.
Projections for fiscal year 2016-17 put the impact of indirect concessions at a marginally higher ₹1,54,822 crore, with excise concessions declining slightly to ₹76,844 crore and customs concessions rising nearly 13 per cent to ₹77,978 crore.
Under the new methodology, adopted by the government and explained in the 2017-18 Budget documents, the Centre has differentiated between “conditional” and “unconditional” exemptions. Unconditional exemptions will no longer be considered for the purpose of calculating revenues foregone or the revenue impact of tax incentives.
Unconditional exemptions in the case of customs duty include lower import duties in the case of bilateral preferential trade agreements with various nations. These lower tariffs amount to sovereign commitment and are therefore treated as de facto tariffs. The revenue impact due to unconditional exemptions of basic customs duty, countervailing duties and special additional duties on specific commodities, tax neutralisation of exports and exemptions for reimports and temporary import will also no longer be counted to estimate revenue foregone.
“Unconditional exemptions prescribe effective rates of duty for a commodity, applicable to all imports of that commodity, without any conditions. In such cases, the tariff rates lose their significance, as all the imports of that commodity come at such prescribed effective rate. In other words, such unconditional exemptions in effect prescribe de facto tariff rates for the commodity concerned,” the government has explained in the statement on ‘Revenue impact of Tax incentives under the Central Tax System’. This statement was known as the ‘Revenue Foregone Statement’ till 2014-15.
Similarly, in the case of excise duty, revenue impact of unconditional exemptions allowed through special exemption orders will not be counted as revenue foregone. “Accordingly, the rates imposed by unconditional notifications have been considered as de facto tariff rates,” the statement added.
Direct taxes untouched There is no change in the estimation of revenue foregone for direct taxes – personal income tax and the corporate income tax. Revenue impact of exemptions to individuals and businesses for 2015-16 was estimated at ₹1,38,658 crore in the 2017-18 Budget documents and for 2016-17 at ₹1,63,526 crore.
The combined total revenue foregone on direct and indirect taxes for 2015-16 is now estimated at ₹2,87,100 crore and for 2016-17 at ₹3,18,348 crore. In comparison, the revenue receipts from income taxes on individuals and business, excise duties and customs duty for 2015-16 were estimated at ₹12,39,276 crore and for 2016-17 at ₹14,51,466 crore.