Will it iron out tax wrinkles?

 W ith an intention of boosting revenues to meet imminent fiscal crunches, many developing countries introduce new tax reforms. Major changes happened in Indian direct tax system since 1962 for a variety of reasons. Amid 1962 to 1990, the Income Tax Act had been dismembered more than three thousand times and prompted the renowned constitutional and tax jurist, Nani Palkhivala to observe the Act as a national disgrace! However, still the unending march of amendments is on and refining the efficiency of the tax system continues to be a key confront in India.

To renovate tax administration further and to erase the possibility of corruption and overreach by tax officials, Prime Minister Narendra Modi recently uncovered new tax reforms. According to him new reforms will benefit sincere taxpayers of the nation, whose hard work sways the evolution of the nation. Unleashing the “Transparent Taxation – Honouring The Honest” platform through video conference, the Prime minister showed grief towards low number of taxpayers in India and urged citizens of India who owe taxes to take bold step to contribute to nation building.

Modi’s new tax mantra

Aiming to have fundamental reforms in India‟s tax configuration and to create taxpayers friendly environment the government launched a fully digitized tax system on August 13, 2020. Faceless Assessment, Faceless Appeal and Taxpayers' Charter are the main components of the transparent taxation proposal. The faceless assessment and taxpayer charter will come into force from August 13, 2020 whereas the faceless appeal system will be effective from September 25, 2020

Faceless assessment targets to ensure fair and polite treatment for tax payers by tax officials. The scheme makes the Income tax department accountable for maintaining the tax payers‟ nobleness. The department must entrust the taxpayer and should not disbelieve anyone without evidences. This scheme aims to eradicate the face-to-face communications between taxpayers and income tax officers. A central computer selects tax returns for scrutiny or inspection based on risk and mismatch considerations. These cases will be allotted to team of administrators randomly. At another arbitrarily selected location this allocation will be studied by officers and if they agree, a notice will be remitted by the centralized computer system which has to be responded by electronic mode. Income tax surveys to gather information for scrutiny assessment will be assumed only by the investigation wing.

The previous system permitted tax administrators from inspector onwards to originate the survey with approval from the joint commissioner of income tax. Nevertheless exceptions will be made in cases of serious fraud, major tax evasion, sensitive and search matters, international tax charges, Black Money Act and Benami property. To make the current tax system seamless, painless and faceless, the Central Board of Direct Taxes which is in charge of administration of personal and corporate tax, will liftoff faceless appeals scheme on September 25 as part of the proposal to diminish physical boundary between tax officers and taxpayers. Random allotment of appeals to officers, no visit to tax offices by tax payers, concealment of the identity of the tax administrators deciding the appeals and team based appellate decisions are the main features of faceless appeals plan.

Supporting the statement made by the Finance Minister of India during the 2020 Union Budget, the government has introduced tax payers‟ charter. The charter lists out accountabilities of the income tax department and taxpayers. The charter commits to provide fair, courteous, and reasonable treatment, treat taxpayer as honest, to provide mechanism for appeal and review, to provide complete and accurate information, to provide timely decisions, to collect the correct amount of tax, to respect privacy of taxpayers, to maintain confidentiality, to hold its authorities accountable, to enable representative of choice, to provide mechanism to lodge complaint, to provide a fair & just system, to publish service standards and report periodically and to reduce cost of compliance. In return, it expects taxpayers to be honest, compliant, to be informed, keep accurate records, know what the representative does on his behalf, to respond in time and make payments in time as per law.

Taken as a whole, new tax reforms target to ease compliance burden of taxpayers, to bring fair objective and just system and to erase physical interface between the department and taxpayers. With this tax transparency era will definitely begin. Hence, the new tax proposals smell good. But taste to be tested.

Gloomy side of the policy

Generally many policies or reforms in the Indian setting are as good as ink spilled on paper. Things begin to crush at the execution stage. Though the enhanced features of the reforms available to an honest taxpayer are yet to be released, any action taken by the government will be felt by an honest taxpayer only when he or she is not saddled with illogical assessment of tax returns and harassment of tax collection against capricious tax demands.

Many tax experts including tax officials found the charter feeble and ambiguous. The new born legally approved charter is much different from prevailing citizens‟ charter which has no legal backing but prescribes time deadline for delivery of services. Moreover, tax officers are confused and do not know whether taxpayer charter or citizens‟ charter to be followed. In the taxpayers‟ charter there is nothing tangible for a taxpayer to pursue compensation or for a supervisor to castigate an officer. With respect to believing taxpayers or respecting their conduct, the provisions of the taxpayers‟ charter are not justiciable or not subject to trial in a court of law. It is not clear that whether citizen‟s charter and taxpayers‟ charter will run analogous.

The association, Joint Council of Action, embodying income tax officers and employees has aired anguish over not being taken into confidence and underlined the unease among 97 per cent of the income tax department workforce towards the reforms. The association urged that no employee should be made jobless due to the reforming exercise.

Section 132 and 132A of the Income Tax Act authorizes the income tax department can conduct a search and seizure. These were amended three years ago and now the department can raid anyone if it has reason to believe or reason to suspect. However, the department is not responsible to reveal the reason to any authority or even the appellate tribunal. To support this, Section 132 (1) was amended retrospectively from April1, 1962 and Section 132 (1A) from 1st October, 1975. Although tax payer pays the tax amount due on his own along with the penalty applicable, failure to file tax returns in time attracts severe sentence for six months to seven years, plus a fine if the tax amount is greater than rupees one lakh. This prompts to raise the prime question and the question is, is it a just and honest system that the charter is talking about?

The income tax department has been given stringent revenue targets year after year to nourish the monster of big government. This gives more powers to tax officers to harass us. Thus, this tactic and more draconian laws present in the Act cannot reduce the tax harassment and department‟s attitude has become more and more vindictive. There are even targets for issuing prosecution or trial notices and other disciplinary provisions, which are supervised weekly by New Delhi.

Tax administrations have conventionally been both the regulator and enforcer of tax laws with restricted care to taxpayer service. Devoted bodies like the Ombudsman in Australia, Canada, United Kingdom, Brazil, South Africa and tax mediators in Belgium and France examine tax connected complaints. These entities are self-reliant of the tax organization and have been established under a specific legislation. The chief objective of this arrangement is to guarantee that taxpayers have a chance to raise worries when they feel they have been treated crookedly. Unfortunately, taxpayers of India do not relish this privilege and there is no tax ombudsman in India.

R egrettably taxmen are not reprimanded for delaying cases and for imposing the harsh penalties. Many taxmen keep cases alive by simply raising a monotonous enquiry from time to time. Few years ago, the Comptroller of Auditor General pointed out that to augment tax revenues, an improper demand was made and the State Bank of India was enforced to make a payment of more than Rs.10,000 crore on March 30. This aided the taxman attain his year end goals and within a week in the new fiscal year the amount was refunded. In India, no harsh penalties are levied on such officials.

As a final point, the Income Tax department known for its wrongs than rights it has practiced in the previous decade of tax reforms. Although the government proposes to narrow the trust deficit between taxpayers and the department, but the allegations of annoyance by the latter decline to go. The tax payers will feel and develop trust in the government only when they get fair treatment. It would be important for the income tax department to assure that new promises do not remain only on paper. It is significant to publicize the reforms including the charter and create an awareness movement leading to a novel era. While the taxpayer charter is founded on relaxing compliance, the policy declarations must also replicate in the functioning of the tax administration. Proper training has to be provided to tax officers to shift the emphasis from simply raising tax orders to supporting taxpayers and truly rationalizing assessments. This will surely augment tax collection, permit the government to spend more freely and shrink the burden on truthful taxpayers. Otherwise, painless, seamless, faceless tax platform initiative will be hopeless, fruitless, worthless.

-Shivanand Pandit

(Tax Specialist||Financial Adviser )