Niti concerned over handling of NPAS, tax disputes

DRAFT 3-YEAR ACTION PLAN

PROJECTING A return to the 8 per cent plus growth trajectory over the next 2-3 years, the draft action plan, floated by Niti Aayog for public consultation on Thursday, has raised several red flags in economic policymaking that need urgent attention. It flagged concerns over rising tax disputes; higher recapitalisation requirement for public banks burdened with NPAS; and scope for interpretation in tax laws.

The draft plan noted that pending tax litigation cost the taxpayer and the government in terms of resources including delays in the collection of revenue. “As of March 31, 2015, over 6 lakh appeals related to Union government's direct tax and indirect tax were pending, with a total dispute amount of Rs 8.2 lakh crore,” the document said.

It also pointed out that a “key factor” behind rising tax disputes was the tendency of tax officials “to initiate an action” without “necessary” justification. “This is reflectedinthelowsuccessrateof 30 per cent they have in tax appeals...,” it said, adding that there wasaneedforassessingperformance of tax officials based on the success rate of their cases. The action plan also called for reducing the scope of interpretation of tax laws via precise formulation of rulesthat“spelloutindetailtaxliability under specific situations”. It suggested implementation of the Easwar panel suggestions.

Ontherisingissueofnpas,the draft plan said that the Rs 70,000 crorecommitmentbythegovernment under the Indradhanush scheme may not be enough. “...it is likely that as the NPAS are moved out of the bankbooks, we will need a larger sum for recapitalisation. The NPAS are now much larger than at the time the Rs 70,000 crore figure had been fixed,”thedraftplansaid.theplan also highlighted the “immediate attention” required by the NPA issue, particularly considering that the detrimental effect was testified by the recent sharp decline in the credit growth of public sector banks.ithasalsocalledforlinking compensation of employees with bank's having a lower share of NPAS in their portfolios, in order tostuntfurthergrowthofstressed assets in the country.

The draft action plan also proposes accelerating of the disinvestment process over the next three years as one of the key reforms to the role of the government. Based on recommendations by a Niti Aayog-committee, the Cabinet had granted its approval for the strategic disinvestment of 20 public sector undertakings. “These are now in the implementationstage.itisrecommended that the Department of Investment and Public Asset Management speed up the process of disinvestment,” the document said.

Apart from these issues, the draftactionplanalsoflagsthefundamental issue in the country's expenditureplanningbyhavinga “strong tendency” towards revenue expenditure at the expense of capital expenditure. It also notedthatwithinrevenueexpenditure, subsidies have overshadowed expenditure on social sectorssuchashealthandeducation. “Similar misallocations also characterise capital expenditures. Owingtothetraditionalpathchosen,alargepartofgovernmentresources has been used for investment in products that the private sector can readily produce and serve no public purpose,” it said. The plan proposes that the government reduces the revenue deficit to 0.9 per cent of GDP by 2019-20, compared with an estimated 1.9 per cent in 2017-18.

The draft pointed out that a “key factor” behind rising tax disputes was the tendency of tax officials “to initiate an action” without “necessary” justification