Revenue foregone, but not forgiven

March 5, 2011, 6:42 PM IST Rukmini Shrinivasan | Development Dialogue | India | TOI

Since 2006, the Union government has been publishing a Statement of Revenue Foregone
as part of the union budget documents. In the interest of greater transparency, this document
lists the special tax exemptions and concessions given to individuals and corporates and
calculates the revenue lost or foregone by the central government as a result of these.
This figure, which rose to over Rs 510,000 crore last year, has now become a much used
number frequently described as a corporate giveaway, so it may be useful to take a closer
look at the numbers to see whom these `gifts are really going to.
Take a look at this years statement.

Tax type

Revenue Foregone in 2010- Total tax collection in 2010-11

11 (in Rs. Crore)
(in Rs. Crore)
Corporate Income Tax
88,263
296,377
Personal Income Tax

50,658

149,066

Excise Duty

198,291

133,300

Customs Duty

174,418

131,800

Total

511,630

710,543

(Source: Budget Documents 2011-12)

Looks pretty bad, right? Lets start with the second entry, the smallest one, because thats
easiest to tackle. The single largest component of personal income tax exemptions is the
exemptions given on account of investments made by tax-payers, followed by revenue
foregone on account of the higher exemption limit for women and senior citizens. Taken
together, that makes personal income tax revenue foregone fairly well justified.
Now lets get to the first entry, corporate income tax. The largest component is
exemptions granted under accelerated depreciation, followed by several smaller
exemptions including for SEZs, for companies that set up in backward areas, those that are
engaged in generating power etc.

The argument here is that many companies do not fulfil the conditions that they were
granted exemptions under; for example, although SEZs are meant to bring investment and
employment to rural areas, many of Maharashtras biggest SEZs have been cleared to be
set up in Mumbai itself. This is a valid point, but until we know what proportion of these
exemptions have been granted to corporates who bypassed the rules, its not accurate to
characterize the entire sum as a giveaway.
Now we come to the indirect taxes, excise and customs duty. The smaller part of
excise exemptions is accounted for by states like Himachal Pradesh, Uttaranchal and
Gujarat (Kutch region only) which have waived excise duty as an incentive. The larger part
comes from central exemptions have been higher for the last two years as a stimulus to
industry following the global recession.
Customs duty exemptions, i.e. exemptions on duty that is charged on imports, which form
the single largest component of all revenue foregone, is perhaps where our sights should
finally be trained. The top five categories of goods with the largest customs duty
exemptions in 2010-11 were (in descending order): precious stones and jewellery, mineral
fuels and oils, animal or vegetable fats, machinery and electrical machinery. Its the first
one in this list Rs 48,798 crore exemption on customs duty for imported jewellery in one
year alone that I find truly objectionable, considering that its almost the size of our entire
annual food subsidy.
Ultimately, the problem to me is one of rhetoric. For instance, I personally believe that
there should be universal access to subsidized food in a country where 40% of children
are malnourished. However, Im not sure that attacking the revenue foregone figure is
a good way of explaining where the money for a universal Public Distribution System will
come from, since not all of this money can be dismissed as gifts to the rich. Where this
money will come from, then, should be the subject of honest debate.

Gold, Diamonds & Large Corporations; Indias Biggest

Tax Beneficiaries
Rohit Sinha, June 25, 2013

Highlights
* India gave away tax breaks or exemptions worth Rs 533,582 crore ($97 billion) or nearly
67% of tax collections in 2011-12
* While small companies had an effective tax rate of 26.26%, large companies enjoyed an
effective tax rate of 21.67%
* Revenue foregone under excise duty was greater than the actual collections in 2011-12

Did you know that India gave away tax breaks or exemptions worth Rs 533,582 crore ($97
billion) or nearly 67% of tax collections in 2011-12.
Thats according to the Statement of Revenue Foregone, a part of the Union Budget
documents presented for the first time in the 2006-07 Union Budget, and a regular practice
ever since.
This is not to say all such breaks are good or bad, merely to highlight what the specifics are
and for those who want to ask; what specifically can we afford and not ?
Revenue foregone also tells you about the Governments policy stance and how
concessions/relaxations/exemptions are conferred upon preferred tax payers. Such tax
breaks could also be termed hidden subsidies, since they could be in the form of
exemptions, special tax rates, deductions on taxable income, rebates and tax deferment or
tax credits.

How Much Can We Forgo To India Inc?

P. SAINATH

A corporate world which has on average received Rs 7 crore every hour (or Rs 168 crore
every day) in write-offs on just direct corporate income tax alone. And that for nine years
running. (Longer, but we only have data for those nine years.)
And thats if we look only at corporate income tax. Cast your gaze across write-offs on
customs and excise duties and the amount quadruples. The provisional figure written off
for the corporate needy and the and the belly-aching better off is Rs 5,72,923 crore. Or Rs
5.32 lakh-crore if you leave out something like personal income tax, which covers a
relatively wider group of people.
Its close to three times the amount said to have been lost in the 2G scam. About four times
what the oil marketing companies claim to have lost in so-called under-recoveries in
2012-13. Almost five times what this years budget earmarks for the public distribution
system. And over 15 times whats been allocated for the MNREGS. Its the biggest
giveaway, an unending free lunch thats renewed every year. Gee, its legal, too. It is
government policy. Its in the Union Budget. And it is the largest conceivable transfer of
wealth and resources to the wealthy and the corporate world that the media almost never
look at.
Its tucked away at the very rear of the budget document. A seemingly innocuous annexure.
Its title, though, is disarmingly honest. Statement of Revenue Foregone.(see:
http://indiabudget.nic.in/ub2014-15/statrevfor/annex12.pdf) There are those who point out
that this should more correctly read forgone and not foregone. The former actually describes the process of relinquishing or abstaining from something. In this case, from
collecting taxes that are legitimately due. The budget document says revenue foregone.
However, the write-offs are anything but semantic.

So it totalled Rs 5.32 lakh-crore in 2013-14. But budgets only started carrying that annexure
a few years ago, and we only have the data from 2005-06 to 2013-14. In those nine years,
the corporate karza maafi amounted to Rs 36.5 lakh-crore. That, in case you like the sound
of the word, is Rs 36.5 trillion. (Okay, so for the record, these were all UPA years. But lets
see next year if the NDA proves even slightly different).
For those stricken by number-crunchitis: that works out, on average, to Rs 1,110 crore every
dayfor nine years. Thats one hell of a free lunch. Sure, there are elements that benefit
wider groups. Like personal income tax concessions (which is why theyre excluded from
the calculations here across those nine years). But do look at some of the big items.
In more than one year since 2005-06, the item hogging the biggest write-offs in customs
duty was gold, diamonds & jewellery. Not quite the province of the aam aadmi or aam
aurat. In 2013-14, the amount was Rs 48,635 crore. That was more than the amount writtenoff on machinery. Greater than what was written off on vegetables, fruits, cereals and
vegetable oils. In 36 months between 2011-14, duty write-offs on gold, diamonds and
jewellery totalled Rs 1.67 lakh crore.

Yet, the concern is over a one-time loan waiver to millions and millions of farmers (which
never touched the most needy of them). Or food subsidy worth less than ten rupees a day
per person below the poverty line in the hungriest nation on earth. Not over giveaways to
the corporate world and the better off that cross 1,100 crore a day on average in nine years.
There is hand-wringing over a rural employment guarantee programme that, at its very best,
cannot give Rs 15,000 in an entire year to a family of five. Not over corporate karza
maafi that works out across those nine years to Rs 1.28 lakh per second.

He claims that there will be enormous spill-over benefits to small and medium
enterprises, but that has not been so evident in the recent past. It is far more likely that
direct benefits to MSMEs would have had more impact on investment and therefore
production and productivity, while costing much less for the exchequer.
These concessions have other implications as well. During the 2000s, when corporate
profits were soaring, tax concessions in different forms provided to the corporate sector
amounted to well above one per cent of GDP. And corporate tax rebates are only one form
in which the corporate sector is favoured, as the controversies over spectrum sale, coal
blocks and even gas pricing suggest.
All this has reduced the fiscal space available for some much required public spending.
Even the sum estimated by the Parliamentary Standing Committee on Food Security as
needed to support its recommendation for universal provision in 2011-12 was less than onefourth of the taxes foregone through various concessions in that year. Anyone with a sense
of social priorities should, in the circumstances, recognise that the argument that the money
is not available is without much basis. What is lacking is the will to mobilise the surplus
and allocate it to where it is needed most.
So it is surprising, to say the least, that the Finance Minister has chosen to provide a further
tax concession only to giant companies to coax them to increase their spending.
We could have used that Rs 36.5 trillion a bit differently. You see, with that sum, you could:

Fund the Mahatma Gandhi National Rural Employment Guarantee Scheme for
some 105 years, at present levels. That is a hell of a lot more than any agricultural
labourer would expect to live. You could, in fact, run the MNREGS on that sum,
across the working lives of two generations of such labourers. Current allocation for
the scheme is around Rs 34,000 crore.
Fund PDS for 31 years (current allocation Rs 1,15,000 crore).

By the way, if these revenues had been realised, around 30 per cent of their value would
have devolved to the states. So their fiscal health is affected by the Centres massive
corporate karza maafi. Even just the amount foregone in 2013-14 can fund the rural jobs
scheme for three decades. Or the PDS for four-and-a-half years.
Heres a media full of market televangelists who preach every night about the need to trim
subsidies. Why not start with those above? Well, because so many media outlets are part
of corporations locked in the feeding frenzy at the subsidy trough. But to return briefly to
the semantics of loot and grab (versus crumbs off the table). Give the poor and hungry
assistance worth less than Rs 10 a day to help them have just a tad more foodthats a
subsidy. Give trillions of rupees to the richthats an incentive or at best a deduction.
Even the otherwise frank Statement of Revenue Foregone titles many giveaways
as incentive/deduction or, at best concessions.

Its not as if governments or officialdom are unaware of how regressive all this is. The
2009-10 budget said in so many words: The amount of revenue foregone continues to
increase year after year. As a percentage of aggregate tax collection, revenue foregone
remains high and shows an increasing trend as far as corporate income tax is considered
for the financial year 2008-09. In case of indirect taxes, the trend shows a significant
increase for the financial years 2009-10 due to a reduction in customs and excise duties.
Therefore, to reverse this trend, an expansion in tax base is called for.
I wrote about this at the time. And the language and tone changed from the next year. No
more calls for reversal. I wonder why? Yet, the budget still notes a rising trend in plutocrat
plunder. Even this year, it notes: The total revenue foregone from central taxes is showing
an upward trend. Now remember, the same class of subsidy beneficiaries loot public
sector banks of countless thousands of crores. By the time this piece is out, the All-India
Bank Employees Association will have revealed the names of wanton defaulters who
currently owe the banks tens of thousands of crores. These are names governments have
refused to reveal even to Parliament on the plea of the RBI Act and banking secrecy.
Who says industry has been doing badly? The amounts recorded as written-off in the
Statement of Revenue Foregone for 2013-14 are 132 per cent higher than they were in 200506. (Even with the budget document gently, sometimes silently, clucking its tongue at the
trend). Corporate karza maafi is a growth industry. And an efficient one.

(Magsaysay Award-winner Palagummi Sainath is the countrys foremost chronicler of the travails of
farmers. A shorter version of this piece appeared on his blog, www.psainath.org)
In an earlier version of this article, because of a typo, the years 2005-06 to 2013-14 were referred to as
'NDA years'. This was corrected online to 'UPA years.'-- Sunday, July 20, 2014.