Budget 2007: The tax exemption story

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Excerpts from CNBC -- TV18's exclusive interview with Mukesh Butani, Partner, BMR and Associates; Gaurav Taneja, National Director - Tax; and Rohan Shah, Partner at Economic Laws, Practise

Buoyant tax revenues: do you think the Finance Minister will use this opportunity to cut down certain taxes? Or do you see him, for instance, cutting all surcharges on personal and corporate income tax?

Butani: If there is an opportunity to cut tax rates, it couldn't have been a better year than this. But it is important to judge the quality of tax collection. You can divide tax collection into two categories: one voluntarily discharged by tax players and one which the government collects as a result of assessment.

Most tax advisors are said to have regulars in the department. The government collects enormous amount of taxes by assessments. The government needs to ask itself what the quality of this tax collection is. When many of these assessments land up in court, they will rule in favour of the taxpayers and, eventually, the government will have to refund this money.

It is an alarming situation and the government is getting into a mini debt trap. So the quality of tax collection is important. To summarise, if you look at the sheer volume of tax collections and the enhanced tax collection, there is a case to reduce the tax rates.

Over Rs 1 lakh crore is stuck in litigation. This could serve as a bit of a deterrent?

Butani: Rs 1 lakh crore is really an old figure. Figures are increasing by the day. But, yes, my reference is to this mounting amount of outstanding taxes. Also, given the current administrative environment, when a tax demand is raised, taxpayers do not get an opportunity to wait even until the first level of appeals.

The norm in the revenue department is that 50% taxes should be discharged within the statute period of 50 days. So what you see as tax collection Rs 1 lakh figures is the unpaid demand. A substantial amount of assessment reassessment taxes gets paid, which forms an overall part of the tax collection figure the government talks about.

So it has to do with the kind of accounting the government resorts to when it comes to tax collection, the outstanding taxes and the overall administrative and a peace redressal mechanism.