'Big Data, AI aiding higher tax collection'

Sanjay Kumar Agarwal, chairman, Central Board of Indirect Taxes and Customs (CBIC), tells Fortune India what is driving the buoyancy in GST (goods and services tax) revenues. Edited excerpts.

What explains the cut in revised estimates (RE) in customs and excise revenues for FY24 in the Interim Budget?

As far as excise duties are concerned, these are levied on very few items, mainly fuels and crude oil, and may be on tobacco, but the collection is mostly from petroleum products. In May 2022, the duty rate was reduced by ₹8 per litre on petrol, and by ₹6 per litre of diesel. Initially, the collection is less because the rate was cut drastically. Next year, the impact may not be there.

Apart from that, there is special additional excise duty, or windfall tax. It was reduced by 56% last year. That again is dependent on global oil prices, and domestic petrol and diesel rates. Accordingly, the windfall tax rate is calibrated. This year, maybe because of those conditions, it was calibrated at a lower rate. So there is less collection on that count. That has led to a negative (-6%) growth in the Union excise duty collection, but in the next financial year, we are expecting a growth of 5%.

On the customs duty front, the merchandise import in India has come down from $548 billion last year to $505 billion in value terms in the first nine months, as per the Department of Commerce. Due to a drastic reduction in commodity prices in the international market maybe the quantity has not come down to that extent and could even remain the same, but in value terms there is a contraction of 8%. So, while India may have benefitted from lower commodity prices, it has impacted customs duty collection, which has grown 2% in the current year. We have taken into account the duty collection on the customs side while fixing the target for the next fiscal.

When we are talking about nominal GDP growth of 10.5%, would you also agree that despite the buoyancy in GST collection, this projection is conservative?

On the GST side, the collection is linked with nominal GDP growth. Last year, the GDP growth which was mentioned during the budget was also 10%. Normally, we are noticing a tax buoyancy of 1.1. So that makes it a growth of around 11%. This year we are growing at 10.7%. But in the last quarter, there has been some additional growth of 5-6% in GST revenue. Currently, around 73% of the budget estimate has been collected, but in the last quarter, the collection has to be 28%. That 28% will be met by this 5 or 6% growth, which we have historically noticed in the GST collection. That gives us the confidence that we will achieve the BE (budget estimate) for the current financial year. The estimated nominal GDP growth is 10.5%, so if you apply the tax buoyancy of 1.1, it works out to be 11.6. BE has been fixed for the next financial year at 11.7, and it is quite realistic. It's neither on the higher side nor on the lower side. It is at par. Tax buoyancy projections are made after taking measures to encourage voluntary compliance and by using data analytics to ensure wherever there is evasion or avoidance of tax, we can ask taxpayers to pay up. That is the reason we are noticing a tax buoyancy of more than one. We expect this trend to continue.

You have mentioned the use of Big Data and AI for enhancing tax collections. Can you give us some sense of how and to what extent, and what different data sets have been synced for this purpose?

We are receiving data from returns paid by taxpayers for GST. They are filing their returns on the income tax side, making deductions on TDS. All such data is collated. Other than that we are getting RFID data about the movement of goods. All this data is used when we do network analysis. We use data analytics to see whether there is a missing link or a missing supply so that it gives an indication of fake entities. Then we catch them.

Any estimate of cases being unearthed?

We are working very hard to identify entities that may be indulging in these activities and are booking cases against them. We are concentrating on busting syndicates. There is a concerted drive going against them and that is giving good results.

The Finance Minister has said the coming years will be that of big reforms. What are the big-ticket reforms one can expect on the indirect tax front?

On GST rate rationalisation, a GoM (group of ministers) has been constituted by the GST Council. Maybe after the elections, they will submit the report. That will be a big thing for rationalisation on the GST front, which will bring in a lot more simplicity. But that reform will come from the GST Council. On the excise front, the duty is on very few commodities. On petrol or diesel, if the Centre raises the duty by ₹2 per litre, it will be immediately felt by consumers. If it is reduced, again, it will be known to consumers. So there is not much scope for change, but that decision can be taken at any point in time. On the customs side, duties are calibrated as per the needs of the country. Customs is not a revenue-raising measure. It is to control the availability of commodities to ensure the industry is not impacted if there is a surge in imports. If there is a shortage of commodities, custom duties will be lowered irrespective of whether it will result in lower duty collection.

One of the things the FM mentioned is self reliance in oilseeds and considering that it's a very large outgo of forex, has there been any discussion on the roadmap around which this will be done, in terms of even moderating it with tax initiatives?

On edible oil, if there is a shortage, and we have to keep prices in check, duty rates will have to be lowered. Bringing self-sufficiency means you have to increase agriculture production. The agriculture ministry will have to look into it.

On GST, the numbers are rising, but there are two kinds of discourse around it. One, in the economy, a lot of consumption is happening, and second, the base is the same or maybe slightly better, and just because of compliance measures the numbers are very good. What is your take?

It is both. If there is spending on infrastructure development, the consumption of steel and cement, it will lead to growth in GST revenue. But if it (the growth) is more than nominal GDP, it will be led by better compliance.

The Interim Budget has waived off legacy direct tax demands below ₹25,000. GST may be a new regime, but do you think such an amnesty could reduce litigations or tax demands?

In income tax, the tax base is very large, about 8 crore. But in legacy loss on indirect taxes, like in central excise, the taxpayer base was just 60,000. On service tax it may be something like 20-25 lakh. So there is no comparison. And this is indirect tax and that is direct tax where the demand raised may be just ₹100, or ₹1,000. If you add for different years, it may be, say ₹25,000. In many cases it might have been paid also. They are doing automation and they wanted to clean up their books, that's why they are taking it out of their books. But that may not have been the scenario if the taxpayer base was small. In case of GST, the taxpayer base is very large, around 1.4 crore.

What are the precautions the government is taking while making a demand on the taxpayer to ensure there is no harassment per se?

I communicate with field officers through my weekly letter. I have pointed out that whenever a tax demand is to be raised, first we need to send an intimation. Whatever representation is received from the taxpayer should be looked into before a demand is raised. So they should work well in advance, take into consideration the representations and then only issue the demand. And even if a demand is issued at the last minute, it is to be adjudicated in the next three months.

How much of human intervention has been removed?

We decided to switch over to GSTN's back office after I took charge, so that the entire tax administration, whether it is central or state, will use the same back office and things can be rolled out faster. All communications from the tax department will be through the common portal, GSTN. Replies will come to officers through that and in the dashboard of offices. We are working to ensure all our communications take place digitally.

Is there any reconsideration of GST on online games?

The growth is so much. I am not sure whether I have the complete figures, but it was something like ₹220 crore per month on an average before the amendments came into effect, and after that it has shot up to ₹1,200 crore per month. So why should there be any rethink if everyone is happy unless we have a lot of sympathy with what's going on in online platforms, whether their prize money has come down slightly? They may be the only losers, may be a little bit, but not the online gaming firms, nor the revenue department. And this revenue collection is going for better causes or welfare schemes if they earn a little less in gambling.