New Delhi has brought to light a staggering revelation regarding outstanding direct tax arrears, with two-thirds of the total ₹43 lakh crore deemed “difficult to collect.” This concern was highlighted during a recent meeting of a Parliamentary panel, which sought solutions, including a potential moratorium, to tackle this growing issue. The Chairman of the Central Board of Direct Taxes (CBDT) acknowledged the alarming scale of these arrears and pointed out that many of them stem from legacy issues dating back to the mid-1990s.
The Scope of the Tax Arrears
The Standing Committee on Finance has formally presented its findings in Parliament, emphasizing that a significant portion of the tax demand—approximately ₹10,55,906 crore—has been pending for over five years. The Revenue Secretary disclosed to the committee that a substantial amount of this tax demand is, in fact, fictitious.
- Total arrears: ₹43,07,201 crore
- Difficult to collect: ₹28,95,851 crore (67% of total)
- Pending for five or more years: ₹10,55,906 crore
Legacy Issues and System Inefficiencies
The CBDT Chairman explained that the challenges are partly due to outdated practices, particularly the reliance on manual registers before the transition to a digital system. This older method failed to accurately reflect interest calculations, which are now incorporated annually in the updated system. As a result, the penalties imposed on income tax have led to an ever-increasing backlog of non-collectible demands.
Recommendations for System Improvement
The committee expressed deep concern over the current state of affairs, advocating for a comprehensive review of the tax assessment process. They believe it’s crucial to enhance efficiency in tax collection while considering the challenges faced by genuine taxpayers, who often suffer under erroneous or inflated tax demands.
The committee suggests that, given the digitization of tax records, it is essential to implement significant reforms, including:
- Writing off certain demands
- Implementing moratoriums
These interventions aim to systematically reduce and reconcile the overwhelming backlog of tax arrears in a timely manner.
Conclusion
As the conversation around tax collection evolves, it’s clear that both the government and tax authorities need to adopt a more sensitive and efficient approach. The pressing need for reform in the tax assessment landscape could pave the way for a more equitable system that supports compliant taxpayers while addressing the monumental challenge of collecting outstanding dues.
