A Bold Reform In The History Of Taxation

Dr. K. Shivaram, Senior Advocate, has stated that the step to cut corporate tax is a much needed bold reform-tax. He has pointed out that professionals have wholeheartedly appreciated the sincere efforts of the Honourable Prime Minister of India and Honourable Finance Minister of reducing the tax rates and creating investment-friendly atmosphere in the Country

1.Introduction: The Hon’ble Prime Minster of India, Shri. Narendra Modi has stated that “The step to cut corporate tax is historic. It will give a stimulus to Make in India, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians. Announcements in last few weeks clearly demonstrate that our Government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $ 5 trillion economy“. [source: Hindustan Times 20-09-2019]

Industry captains across the country have acknowledged and appreciated the move to reduce tax rate to 15% as a historic event and predict that this will bring more investments to India as well as create more opportunities of employment. When more investments flow to India, we will also need more tax professionals who can guide the investors and explain the Indian law on taxation as well as state laws on regulation, stamp duty, RERA etc.

2. Advantages: Apart from the new introduced reduction in rate of tax, India has many advantages to attract investments from rest of the countries around the globe. Some of them are mentioned hereunder:

2.1.India is one of the biggest democracies in the world by population. The Constitution of India is the supreme law of the land in India. One of the most important provisions of the Constitution of India is Article265which provides that “No tax shall be levied or collected except by authority of law”. This shows a clarity in tax laws due to which foreign investors will be able to be well aware of where their investments go and their exposure, if any, to taxation.

2.2.Since 1991, India has concentrated on development and liberalization of the country that necessarily has involved the streamlining of laws and procedure for doing business in India. The introduction of the Goods and Service tax (GST) has helped make India to be country with a Federal structure but yet adopt the policy of ‘One Country with One Tax’. This step has helped the ease of doing business. All the States, are making efforts to attract investors, which is leading to the overall development of the Nation. Each State having it’s own demographics, natural resources and geographical advantages, has its own unique advantage for attracting the investments.

2.3.India has one of the finest judicial systems in the World. It also has a matured tax system and tax administration in place. The cost of tax collection in India is only 0.67%of the revenue generated, which can be considered as amongst the lowest in the world. In India 99.9% of the Income Tax Returns are filed electronically and 95% tax returns are accepted without scrutiny on the basis of tax audit certificates given by the Auditors. Under GST, 1 crore returns are filed electronically every month.

The Tax administration has recently introduced an E-assessment scheme which will bring greater transparency and accountability to the scrutiny process. This will do away with the face-to-face interaction between tax payers and tax officials. This is a step towards better service to taxpayers, a reduction of grievances in line with Hon’ble Prime Minister’s vision of Digital India as well as promoting of ease of doing business.

2.4. Hindi is one of the official languages spoken in the country. English also being one of the official languages, is used extensively in commercial establishments and Government Offices. India is very fortunate of having one for the highest number of English speakers in the world.

2.5 .We have introduced the Advance Pricing Mechanism which helps in reaching finality in disputed issues in taxation. Residents as well as non-residents can approach the Authority for Advance Rulings for determination of tax liability and this authority has to pass the order within six months of the filing of the application.

No doubt, there are delays in passing the orders by the Authority for Advance Ruling at present, but we hope that the Government will take appropriate measures so that the applicants would be able to get clarity regarding their tax liability, at the earliest.

2.6 .India has signed Double Taxation Avoidance Agreements with more than 94 Countries. As per the provision of Income-tax Act, when there is a conflict between the Income-tax Act and the Double Taxation Avoidance Agreements, the assessees can follow the law which is beneficial to them.

2.7 .For regulating the Stock market, we have an efficient regulator in the form of the Securities Exchange Board of India (SEBI). The Government of India is encouraging litigants to pursue Arbitration proceedings in most of the commercial dealings.

The recently updated Arbitration and Conciliation Act 1996 has lead to litigants having a quick and effective recourse to quickly settle their litigation without undergoing the lengthy process of a court trial.

2.8.India is recognized as a global leader in the legal process outsourcing Industry. This is mainly because of a large number of talented English speaking lawyers, Chartered Accountants, computer educated professionals and the rapid deployment of technology coupled with a our legal system that while following the British Tradition, adopts the best aspects of the varied legal systems that have been developing around the world. The Supreme Court, High Courts, Quasi-Judicial Authorities including the Tribunals, Tax administration, commonly conduct proceedings as well as pass orders in English. The legal opinions are easily obtained in English and the Arbitration proceedings are often done in the English Language.

2.9. India is advancing rapidly in the of development of infrastructure, education, agriculture, heathcare digitalization etc.which will aid the conduct of business as well as improve the quality of life for the workforce.

2.10.In India,the service sector contributes about51% to the GDP of the country. We have more than 16lakh lawyers, around 2.7 lakh Chartered Accountants and a good number of other professionals such as Company Secretaries and Cost Accountants. In India,the legal profession is considered as a service to the people and a way of giving back to the society. There are a number of restrictions on the practice and there is a strict code of conduct laid down while has to be followed. Most of the practitioners practice as sole proprietors or collaborate to form small firms.

2.11. The Indian banking system is well governed and possesses world class infrastructure in line with the rest of the world. India is rapidly moving towards a cashless system of transacting.Even newspaper suppliers, vegetable vendors are adopting digital payment methods at a rapid pace. Because of such reporting system adopted by the Banks and various government agencies, citizens are finding themselves taking the effort to comply with the regulations and this intern shall cause the number of tax-paying assessees to increase many fold in the years to come.

2.12.In the year 1973-74, the effective tax rate was 97.5%, being the highest bracket,apart from 11 other tax rates and slabs.With the incidence of wealth tax, where an estate duty was levied on inherited wealth and a separate gift tax levied on transfer of wealth, the effective tax rate crossed 100 percent. The first major overhaul of the tax rates was brought about by the then Hon’ble Finance Minster Dr. Manmohan Singh, who reduced the Income tax slabs to three rates i.e. 20%, 30% and 40%.

In stark contrast, in today’s date in the case of new Industries involved in manufacturing, the tax rate is only 15%. I feel that given the rationalization of the tax structure and the enormous costs of nation building, it is now time, where tax professionals shift their advisory roles from tax planning to tax management. Given that the fundamental nature of tax laws have remained the same and the law is both well developed and settled,the modern day professional armed with his knowledge of tax, should be able to convince the Assessing officer through the process of relying upon the Act and the factual documents given that the Assessment is now moving away from face to face hearings toe-assessment in case of scrutinies.

3. Role of Income Tax Appellate Tribunal (ITAT) to attract investments to India

3.1.In India, the ITAT is the final fact finding authority in as much as tax matters are concerned. As on 1-9-2019,the total pendency before the ITAT is only 91,000 appeals(Refer AIFTPJ-Sept, P 81). The assessees are able to get speedy justice as the litigation in any case now reaches finality within one year of filing of the appeals. When the process of recruitment of the new Members is concluded and the bench strength increases, the Assessee may be able to get the decision of the Tribunal within six months of filing of an appeal.

3.2.Recognition of orders of the ITAT by International forums:

Mr. Philp Baker QC, one of the world renowned authorities on International law, in his Article, published in the Souvenir of the ITAT on the occasion of Platinum Jubilee celebration of the ITAT, stated that, “The ITAT is probably one of the most productive Tribunals in the world in issuing decisions relatingto international tax matters”

Prof. Dr.Jeffery Owens, in one of his articles has stated that, “ITAT, especially in recent years has recognized the key role it has in getting the right balance between protecting the Indian tax base and providing certainty and predictability to foreign investors“.

The AIFTP had organized an International tax conference at Mumbai on 21-11-2009 where representatives from over 16 Countries were present and also visited the ITAT and High Court to watch how the legal proceedings are conducted in India and highly appreciated the manner in which the proceedings were conducted.

3.3. Measures to reduce tax litigation in India:

It may be appreciated that in the recent years, India has taken adequate measures to reduce as well as expedite tax litigation. As per the recent circulars issued by the CBDT, if the tax effect is less than 2 crores the Revenue authorities are not eligible for contesting appeals before Supreme Court. Similarly enhanced limits have been set for Revenue Appeals before the High Court being Rs. One crore and Rs. Fifty lakh, respectively.

4. All India Federation of Tax Practitioners’(AIFTP) mission to promote investments in India.

4.1. In the month of May 2007, the AIFTP had taken a group of 45 professionals to the United States of America. On the said occasion, the AIFTP had published a in house book titled “India-USA – Business and Legal Partnership- Strategies“, which was distributed in a conference held at both, New York and Washington. The said publication also contained a message from the then Chief Justice of India, Honourbale Justice Mr. K. G. Balakrishnan.

4.2. Honourable Justice Mr. Vijay Daga, the then Judge of the Bombay High Court, in his message to the publication stated as under, “Indo-US relations are undergoing a qualitative transformation. Co-operation and consultations have broadened and diversified considerably. Both the Countries have recognized that closer relations would be an important and a positive factor for both stability of the region as well as the global affairs. The two nations have been in constant discussed on matters of economic importance“.

4.3. The AIFTP has in the past and continues to make sincere attempts to attract investments to India by sending delegations of tax professionals from India to various jurisdictions like Manila, Kaula Lampur, Hong Kong, China, Japan, Korea, Switzerland, USA, England, France, Germany etc.

4.4.The AIFTP takes pride in the fact that the vision of the AIFTP is synchronized with and is being fulfilled by the Hon’ble Prime Minster of India, Shri Narendra Modi, during his recent visit to USA. The Hon’ble Prime Minister, in his very attractive speech, explained the advantages that India has, both as a strategic partner in terms of a manufacturing hub as well as a vast market with a large potential.

5. Role of the tax Professionals:

5.1 Professionals will have a greater role to play in attracting increased investments to India which will benefit tax professionals across the country. The Hon’ble Finance Minister of India Mrs. Nirmala Sitharaman is very receptive to the suggestions of the public in order to boost the investments. It is the duty and responsibility of each tax professional as a citizen of our great nation to send objective suggestions and play a part in the development of a holistic policy.

It is both the professionals and the professional organizations, which should send objective suggestions to the concerned authorities without any fear or favour. The use of the Right to Information Act and Public Interests Litigation petitions have always came to the rescue of the citizens wherever policy has found itself impinging upon the toes of fairness.

We have celebrated 150thbirth centenary year of the father of the Nation, Shri Mahatma Gandhi on 2-10-2019.Let us pledge towards contributing to an extremely transparent and effective tax administration which will work as a service to the tax payers and help to achieve the goal of the Hon’ble Prime Minster of India to make India a $5 trillion economy.

Reaching this goal, which is to the advantage of the country at large, shall require collective efforts of tax professionals, citizens as well as tax administration and shall set the tone for making India a forward looking, prosperous country that is finally finding her rightful place at the world stage.

Jai hind

(Reproduced with permission from the AIFTPJ October, 2019)