The author suggests to the Prime Minister, who is now also in charge of the Finance Ministry, that if the Government is serious about reforming taxation law, it should listen to professionals who practice the subject day-in and day-out. Professionals know where the problem areas are and why citizens are loath to comply with the law. The author lists out a few burning issues that are crying out for reform. If these are addressed, the taxpayers confidence in the administration will be restored and there will be a marked improvement in compliance with the law, and collection of taxes, promises the author
Our respected hon’ble Prime minster is holding the charge of Ministry of Finance, hence I have made an attempt to put forward the views of tax professionals for his consideration. I am of the opinion that it is the professional organizations and professionals, who make the suggestions objectively, in the interest of nation without any fear, favour or vested interest, therefore if an opportunity is given, they will make a presentation to the Hon’ble Finance Minster and his team, if it is considered objectively, it will benefit the nation. Some of the thoughts which can be debated and considered are:
1. Accountability in taxation.
It is desired that the Commissioner of Income Tax (CIT) of a particular region may visit a village or town and motivate the people to pay the taxes. It is desired that instead of sending the revenue officials abroad, they can be sent to villages to study how to bring more assessees under tax net. Revenue officials must know the ground realities which will help them to do better assessment
Dr. Raja J Chelliah in his committee has suggested that there has to be accountability provision in the Income –tax Act. The recommendation suggested by Dr. Raja J Chellia which are favorable to revenue has been accepted , however the Accountability provision has not been introduced. Some of the revenue officials make the additions for sake of additions knowing very well that the additions will not stand in appeal. Assessing Officer say, “I know addition will not stand in appeal however I have to make addition”. In appeal some of the Commissioner (Appeals) say, “you have a good case however as the amount being very big I have to decide against you, and you will get the relief before Tribunal”. This is mainly because there is no accountability provision. Until and unless accountability provision is not introduced as recommended by Dr Raja J Chellia, the honest tax payers will have to suffer. Federation and ITAT Bar Association have strongly recommended for introduction of Accountability provision before the Standing Committee. It is very much necessary there has to be some accountability provision in the Income-tax Act itself.
2. Bringing more assessee under tax net.
Only 3% of our population is paying taxes. According to me, atleast 10 % of our population may be liable to pay the taxes, however the government is not able to bring them under tax net. It is desired that the Commissioner of Income Tax (CIT) of a particular region may visit a village or town and motivate the people to pay the taxes. It is desired that instead of sending the revenue officials abroad, they can be sent to villages to study how to bring more assessees under tax net. Revenue officials must know the ground realities which will help them to do better assessment. By use of technology and making it compulsory to quote PAN no. in most of the transactions above Rs 50,000/-, the number of assessees can be increased. It is also worth considering whether an agriculturists having more than Rs. 10 lakhs of income can be made to file the return, disclosing the income as exempt. This will help the revenue to determine whether the income is really agricultural income or otherwise. A pension scheme based on the tax paid by a particular individual assessee can be debated, this is mainly because in India, the business or profession is done by individuals.
3. Culture of tax services.
The approach of tax administration must be changed from tax collector to tax service. The honest tax payer is not getting the refund which is rightfully due to him. No appeal effects are given, no rectification orders are passed. If revenue department takes care of refund, rectification and appeal effect 80% of grievances of assessee are solved. Revenue should also realize that the time of assessee is also of equal importance. Appointment is fixed, however the officer will not be available on the date of appointment, there is no culture of informing the assessee that please come some other time.
4. Finality in litigation within reasonable time.
If this is the trend which investor will come forward and make a huge investment in India… if one desire to make investment in Malaysia, the Officials from Government will sit with the investor and tell them that this will be the tax liability for another five years. This type of interaction gives confidence to investors
There has to be finality in revenue in tax matters. The pendency in Income-tax Appellate Tribunal has reduced very considerably and the assessee is getting the decision of the final fact finding body within one year of filing. However when the revenue takes the matters to High Courts, it takes years for the matter to reach for admission and old reference of more than 20 years are also pending for disposal .This is mainly due to not having a centralized legal Cell of Revenue. We have made an appeal to the Chairman of CBDT to have a centralized legal Cell of revenue which can monitor the tax litigation in various High Courts. Tax department is biggest tax litigant in various courts more than 70% litigation before the Courts are by revenue. Revenue files the appeal because of fear of audit and not having any accountability provision. If accountability provision is introduced and only deserving matters are taken before the court, the pendency will be reduced and the finality will be reached within a reasonable time. Most of the references which are pending before the Courts are contested only for sake of academic interest. Assuming the department succeeds, the revenue will not be able to give effect and recover the taxes due to change in jurisdiction and the procedure involved.
5. Maddening instability of tax law
Shri Nani Palkivala on 25th January 1991 on the occasion 50 years of Income-tax Appellate Tribunal, on its golden jubilee, speaking on the occasion wrote an article on the subject of “The maddening instability of income-tax law” he stated that “Taxes are the life-blood of any government, but it cannot be over-emphasised that the blood is taken from the arteries of the tax payers and, the transfusion has to be accomplished in accordance with the principles of justice and fair play. India is waiting for a Finance Minster who will have the courage, caliber and vision to put a stop to the maddening instability of our income-tax law” . However this has not happened so far, even the proposed Direct taxes code being discussed, and pending for consideration, this year’s Finance Act carried so many amendments with retrospective effect, this shows even today there is no stability in tax law .We hope our Prime Minster will bring stability to tax law.
6. One window clearance
World Bank report stated that for starting business in India it requires so many clearances hence it takes number of days. We should have one window clearance where in the investor will be able to decide if he has to invest he has to follow the procedure and it will be cleared from one department. That department will co-ordinate with other department of Central and State Governments and will guide the investor. The approach should be investor friendly.
7. Retrospective amendment
We are aware that the legislature is competent to make the law with retrospective effect. In the era of competition when a business man makes huge investment he is suppose to know what is his tax liability. As a tax consultant the advice will be as the law stand today this is the tax liability, however the law may be amended retrospectively. If this is the trend which investor will come forward and make a huge investment in India. When we had an interaction with tax consultants of Malaysia we were informed that if one desire to make investment in Malaysia, the Officials from Government will sit with the investor and tell them that this will be the tax liability for another five years. This type of interaction gives confidence to investors. In India also, there has to be some assurance that the law will not be amended retrospectively, to nullify the court rulings. If at all any amend is made it will be for the benefit of tax payers and not taking away the benefit.
8. Research in taxation
In our country there is no much research in taxation law and procedure. There has to be ongoing research activities on taxation subjects. Research team may consists of tax officials, Judiciary, business organizations and professional organizations. Research paper may be presented to the legislative department of CBDT. The CBDT after examining the research paper, presents their view before the pubic for debate. After debate the amendment is introduced, the law will become more stable. It is worth considering that instead of amending the Act every year , the law may be amended once in five years which will bring stability in tax law.
9. Representatives from voluntary professional organisations
It has been observed that whenever Government appoints committee, it takes representatives from Business organizations and Statutory organizations however so far it has not taken the representatives from the voluntary organizations. It is desired that the Government may consider the nominating the professionals from the voluntary organisations like, AIFTP, BCAS, CTC etc., which will help the committee to work better. The step of constituting the expert committee to look into the provisions of GAAR is welcome, however in the said committee no professionals are involved. It would have been very appropriate if few professionals were also involved in the said committee. One of the reason why the Direct Taxes code did not meet the expectation of the tax payers was mainly because it was drafted by few revenue officials only taking in to consideration the stand of the revenue. If the Government would have involved atleast few professionals possibly we could have better law.
10. Tax payer should be treated with honour and respect
Recently various high Courts have passed the strictures against the tax administration in respect of high handed recovery proceedings, however inspite of such orders some of the revenue officials not following the directions of the Board, it is not possible for small assessee to approach the High Court by way of Writ, they are the worse sufferers, they have to be protected. The revenue officials must concentrate on bringing more assessee under tax net rather harassing the assessees who are filing the returns.
These are some of the thoughts, there could be many innovative ideas which the tax practioners can put forward before the Officials for their consideration. It must be appreciated that the voluntary organizations like, Federation, BCAS, CTC and ITAT Bar Associations are making representations from time to time and have filed many PIL in tax related matters. Recent paper reports also stated that Hon’ble President of USA Mr Barak Obama also opined that “They tell us it is still too hard to Invest in India” Hon’ble President also stated that “We need to keep up the fight against corruption, which stifles innovation and is one of the biggest barriers to job creation and economic growth around the world .These are some thing we can do together as global partners”. The tax practitioners can play a pro-active role to reduce the unethical practice followed to get favourable decisions which are not in accordance with law. I make an appeal to hon’ble Prime Minister and his team to interact with representatives of these organizations at least for two hours, it will help them to bring better tax laws for our country and it will also help to bring more investment to our country, because it is the professionals who advice the investor advantages of investing in India. I hope the revenue department will convince the Hon’ble Prime Minister to have an interactive session with the representatives of voluntary organizations of tax professionals.
Reproduced with permission from the AIFTP Journal, July 2012