Revenue dept should take action to clear Rs 21 lakh cr tax arrears: Parl panel

The Revenue Department should devise a concrete action plan and a road map to clear the backlog of over Rs 21 lakh crore of tax arrears, a Parliamentary panel said on Tuesday.

The Standing Committee on Finance in its report also suggested that the department should exercise due diligence before carrying out search and seizure operations to ensure that honest taxpayers are not harassed.

It said that the department is caught up in the vicious cycle of tax arrears as more than Rs 21 lakh crore (Rs 18.66 lakh crore in direct taxes and Rs 2.95 lakh crore in indirect taxes) are outstanding.

It observed that a major part of the demand falls under the category of 'demand difficult to recover' which constitutes more than 94 per cent of the arrear demand.

With respect to indirect taxes, out of Rs 2.95 lakh crore, an amount of Rs 2.58 lakh crore are non-collectible, meaning that almost 88 per cent of the arrear demand is non-collectible, and only 12 per cent of that is fit for recovery but not yet recovered.

Acknowledging that tax recoveries got affected due to COVID pandemic, the committee noted that substantial arrears remain non-recoverable, which poses serious questions of the administration of the tax department.

''Noting the fact that tax arrears have been increasing year on year, the committee would recommend devising a concrete action plan and a road map to clear the backlog through a time-bound fast-track mechanism,'' said the report of the committee, chaired by BJP member Jayant Sinha.

Asking the department to handle search and seizure operations with adequate caution, the committee said while stepping up enforcement action against wilful or chronic evaders, the department should not alienate honest taxpayers.

It said that many individual taxpayers have made representations to the committee members that they are treated as ''felons'' by revenue officers while the search is underway, and they are often ''asked for bribes so that the search process is truncated and/or abandoned.'' Asking the revenue department to fully investigate any such wrong doings, the report said ''taxpayers should be provided an opportunity to provide confidential complaints against wrongdoers''.