By TIOL News Service
NEW DELHI, Mar 13, 2006 : ONE of the features of the Union Budget 2006 which seems to have gone unnoticed by the media and regular tax (ing) writers and experts is the Finance Minister's valiant efforts to provide tangible sector specific data on tax expenditure (revenue foregone). Besides infusing greater transparency in fiscal policy-making these statistics also provides a window to ordinary taxpayers and also the beneficiaries of such tax incentives to see how much they contribute to the govt kitty and how much they bag as incentives in the form of deductions.
Let's call it tax subsidy. And whenever one talks about subsidy what may conjure in the mind of an ordinary citizen are subsidies to petroleum, food, fertiliser and sugar. But, here is a stunner for entertainers of such thoughts - as much as whopping Rs 27000 Cr worth of tax incentives are availed by our corporate sector in the form of 'accelerated depreciation' under Section 32 of the Income Tax Act (Click here to see a detailed analysis on misuse of this tax sop).
Other constituencies which cornered gigantic corporate tax subsidies are the software technology park (STPs); Special Economic zones (SEZ) along with the 100% export oriented units (EOUs); SEZ developers; Units located in special category states like HP, N-E etc and others are to the tune of Rs 30,000 Crore (See table for break-ups).
S.No. | Nature of Incentive/deduction | Revenue foregone
(Rs. in crs.) |
| 1. | Export profits of software producing units located in Software Technology Parks (section 10A) | 7080 |
| 2. | Export profits of units located in Special Economic Zones, including Export Processing Zones and Free Trade Zones (section 10A) | 1340 |
| 3. | Export profits of units located in Export Oriented Units (section 10B) | 2320 |
| 4. | Profits derived from development of infrastructure facilities, SEZs and Industrial Parks, generation of power, providing telecommunication services (section 80-IA) | 5832 |
| 5. | Profits derived from housing projects, production of mineral oil, development of scientific research, integrated business of handling, storage and transportation of food grains, industries set up in backward areas (section 80-IB) | 11523 |
| 6. | Profits derived by units set up in Special category States like North-Eastern States,
Uttaranchal, Himachal Pradesh and Jammu and Kashmir (section 80-IC) | 362 |
| 7. | Accelerated depreciation (section 32) | 27077 |
| 8. | Weighted deduction for scientific research and development [section 35(2AB)] | 2318 |
Total | 57852 |
Major tax expenditure on corporate tax payers during financial year 2004-05
Another interesting data which was collated and analysed to find out the quantum of corporate tax revealed eye-opening tax-paying trend among large corporates with Rs 500 Cr and more declared profits. When a sample of 1600 big corporates was looked at against their combined profits of Rs 1,02,325 Cr before taxes, it was found that they had declared only Rs 50,700 Crore to the Income Tax authorities.
But what was found to be more interesting was that as many as 593 loss-making (or zero profit) companies contributed almost 10 per cent of the total corporate tax in 2004-05. What about big corporates with profits of Rs 500 Cr or more? Although they accounted for 74% of total profits of the sample size but contributed only 61 % to the tax kitty. It happened thanks to the tax subsidies availed by them.
So far as tax expenditure on personal income tax front goes it is as low as Rs 11700 Crore, availed by lakhs of ordinary taxpayers. If we further break it down it amounts to only Rs 6500 Cr which was foregone through various saving instruments. Women indeed cornered Rs 2100 - more than Rs 1400 Cr claimed by senior citizens.
On the Central Excise front the major beneficiary has been the SSI sector with Rs 11300 Crore. Area-based exemptions given to some of the states like Uttranchal, HP, J & K, Kutch and N-E cost the exchequer only Rs 1500 Crore. In fact, oil refineries in N-E got a subsidy of Rs 1200 Crore.
What may rattle all those who crave for higher GDP : Tax ratio is the duty foregone on Customs front. All exemptions combined took away Rs 92500 Crore from the exchequer. Our export promotion schemes bagged as high as Rs 50,000 Crore. Jems & jewellery alone cornered about Rs 15000 Crore (See table).
Chapter | Brief Description of Goods (Top ten) | Estimated revenue
foregone
(Rs. in crores) |
| 1. | Precious stones, jewellery | 15024 |
| 2. | Mineral fuels and mineral oils | 13725 |
| 3. | Electrical machinery | 12385 |
| 4. | Machinery | 8660 |
| 5. | Animal or vegetable fats | 7545 |
| 6. | Iron and steel | 6866 |
| 7. | Organic chemicals | 3238 |
| 8. | Man made filaments | 3023 |
| 9. | Optical/photographic instruments | 2435 |
| 10. | Plastics | 1194 |
Estimates of major tax expenditure under the Customs duty
The total tax expenditure is pegged at Rs 158600 Crore which is about 55% of the total revenue mop-up for this fiscal. This is exclusive of Rs 35,430 Crore outgo on exemptions enjoyed by exporters under different schemes. Finance Ministry does not consider them as incentives as they largely represent input tax credit that has to be allowed in order to offer a level playing field to exporters in the international markets.
The maiden effort of giving an account of the expenditure on exemptions to the industry and individual is no doubt a unique effort for which FM and his team deserve kudos. And TIOL is sure these statistics would act as a constant reminder for not only policy makers but also our Parliamentarians who may have good reasons to support the FM's efforts to withdraw some of the tax subsidies in future.
