DTC: Make the tax office accountable for its actions

Despite all the implementation glitches, the introduction of GST was indeed a landmark reform in the field of indirect taxes. GST, together with demonetisation, has had an impact on the direct taxes. We have substantial funds flowing into the formal economy resulting in enhanced tax revenues and expansion of the taxpayer base, something which is critical to improve the abysmally low tax- GDP ratio.

As the government looks at improving India's ranking in the World Bank’s Ease of Doing Business Index, it finds taxes as one of the key negatives pulling us down.

Tax-terrorism still continues to haunt taxpayers and needs to be addressed. The lack of trust between the taxpayer and the tax office continues to be a bottleneck. It is in this background that the setting up of a committee to write a new Direct Taxes Code (DTC) needs to be viewed.

Let’s look briefly as to what are the key issues which ail the direct taxes system. First and foremost is the targetdriven approach of the tax office where collection targets, devoid of the actual income of the constituents, is the basis of tax assessments. This leads to high-pitched assessments and litigation.

Since the government works on cash system of accounting, this leads to holding back tax refunds through multiple and innovative means. The next is the uncertainty governing the implementation. Each tax officer interpretes the Act and the Tax Treaties individually, with precious little central direction, creating multiple (and conflcting) approaches and uncertainty. We then have the timeline that it takes to resolve disputes and the absence of a speedy resolution mechanism.

Advance Rulings take years to obtain, appeals take years to decide, and matters continue to be litigated at higher fora. Finally, we have a new-found aggression of the tax office to penalise and prosecute taxpayers for issues which involve technical interpretation of law.

As can be appreciated, most of these issues need to be addressed administratively and may not necessarily require a change of law. We need to ensure that the tax office is accountable for its actions.

And, we need a mechanism which enables speedy redressal and settlement of issues. This is the unfinished agenda on direct taxes. The new Code, when enacted, will definately make the law simpler. That will help. What is needed more is a mindset change.

There is a newfound aggression of the tax office to penalise and prosecute taxpayers for issues that involve technical interpretation of law