Authored by Harsh Bhuta
The great legal luminary, Nani Palkhivala famously remarked "What is wrong with India is the pathological obsession displayed by the law-makers who frame laws only with the tax evaders in mind, regardless of the enormous inconvenience and harassment to the far larger section of honest taxpayers. In these matters, one must have a balanced approach and a sense of proportion. A departmental store which is wholly preoccupied with prevention of shoplifting is a sure candidate for stagnation."
India has come a long way since then and has made great strides over the last few years in simplifying tax laws as well as changing the image of the Income Tax Department from a tax collector to a tax facilitator.
The launch of a taxpayer’s charter and a platform for ‘Transparent Taxation – Honoring the Honest’ by the PM on August 13, 2020, was a welcome move. With the launch of the tax charter, a taxpayer is assured of fair and rational behavior by the income tax department. The tax charter recognizes that honest taxpayers of the country play a vital role in nation-building.
The charter comprises 14 commitments from the tax administration such as treat the taxpayer as honest, collect the correct amount of tax, hold its authorities accountable, reduce the cost of compliance, provide a mechanism for appeal and review and provide complete and accurate information.
The faceless platform is a game changer as it seeks to make the tax system seamless, painless and faceless. It drives two crucial reforms i.e. Faceless Assessments and Faceless Appeals. It brings with it a promise to streamline and bring greater transparency and accountability into the tax administration by providing maximum governance with minimum government involvement.
It provides for using technology as a medium to conduct income tax assessments and commissioner of income tax (appeal) cases. It has eliminated the interface between the Assessing Officer/ CIT(A) and the taxpayer, optimized the utilization of resources through economies of scale and functional specialization and introduced a team-based approach with dynamic jurisdiction to be allocated via a centralized module to officers all across the country.
Although it may be noted that several technological hurdles are hampering the smooth implementation of this platform. It is also ironic that this transparency has been brought about by seeking to prop up a wall between the taxpayer and the officer in charge of assessment/appeals. The non-granting of a personal hearing via video conference as a default choice may be a violation of the principles of natural justice and could result in constitutional challenges.
It must be mentioned that the Government has come out with various progressive measures over the last few years in driving home its focus of reforming the tax system.
Some of the significant measures are as below:
Reduction of Corporate Tax Rates: The government has understood that corporate tax rates in India need to be competitive vis. a vis. other countries globally. The tax system also needs to do away with tax incentives and exemptions which are open to interpretation and create unnecessary litigation. Thus, the decision to introduce a new tax regime with a reduced corporate tax rate from 30% to 22% while doing away with most exemptions/incentives will go a long way in reducing litigation and encouraging higher tax compliance. Further, incentivizing new manufacturing with a corporate tax rate of 15 percent will boost new investment in the manufacturing sector while creating new employment.
Vivad Se Vishwaas Scheme: This was introduced in the 2020 budget to provide a speedy resolution of pending tax disputes. This scheme is a lifesaver for appeals where the case of the taxpayer is weak or in old tax dispute matters, where the interest component of the demand is often more than the disputed tax itself. It allows the taxpayer to pay a reduced amount and gain peace of mind while the government can collect much-needed revenues. Declarations under this scheme have to be filed before December 31, 2020.
Document Identification Number (DIN) introduction - wherein every communication of the department would carry a computer-generated unique DIN, brings complete transparency in official communications. This move eliminates the possibility for harassment of taxpayers through illegitimate or frivolous tax notices.
Increasing of monetary thresholds for filing of department appeals in various appellate courts -before the Income Tax Appellate Tribunal from Rs 20 lakh to Rs 50 lakh; before the High Court from Rs 50 lakh to Rs 1 crore and before the Supreme Court from Rs 1 crore to Rs 2 crore. This significantly reduces the litigation burden on the taxpayer as the matter achieves finality at the lower courts.
Increase ease of compliance for filing returns - introduced prefiling of Income-tax returns to ease the compliance burden and make it more convenient for individual taxpayers to file accurate returns without the assistance of professionals.
I am reminded of a quote by the renowned American economist, Mark Skousen who said that “Taxation is the price we pay for failing to build a civilized society. The higher the tax level, the greater the failure. A centrally planned totalitarian state represents a complete defeat for the civilized world, while a voluntary society represents its ultimate success.”
The measures taken by the Indian government are steps in the right direction and may allow India to eventually become a voluntary, conscientious tax paying society.
Harsh Bhuta is a Partner at Bhuta Shah & Co LLP. Views are personal
First Published: IST