Need for mediation council

REFORMING TAX ADMINISTRATION

Partner and co-head of tax at KPMG in India

Thematically, the Budget speech was speckled with ideas around aspirational India, economic development, and building a caring society. A special focus was cast on strengthening agricultural and rural India, improving wellness and improving access to education. While several economic measures have been taken to implement this objective, an important unfinished agenda is the improvement of tax administration. Reform of tax administration is the final step towards ease of doing business in India and improved investor confidence. Finally, this should also support economic growth.

A positive step in this direction in the Budget announcements has been around the proposed inclusion of a ‘Taxpayers Charter’ in the income-tax statute, with a specific mandate to the Central Board of Direct Taxes (CBDT) to adopt the same for the benefit of taxpayers. While details of the same are awaited, it does create hope. Like all good ideas, its efficiency will only be determined by its implementation details. It will be beneficial to introduce a Taxpayers Charter across other taxes as well.

It is important to introduce an efficient dispute resolution mechanism to ease the pain of an overburdened dispute resolution machinery. There is a need for the constitution of a centralised independent body/council that will mediate with the taxpayer and resolve disputes in a timely manner. A consultative process between the authorities and the taxpayer will be welcomed by the taxpayer and will lead to quicker negotiated settlements. This will mitigate protracted litigation, free up the time of courts to attend to more critical matters, and provide speedy disposals.

With the conclusion of the Sabka Vishwas scheme under indirect taxes, which helped taxpayers close some of the legacy indirect tax disputes, attention is now placed on the 'Vivad se Vishwas' scheme which aims to reduce the direct tax litigation. This is one of the welcome measures of this year’s Budget proposal from a direct tax perspective.

There is a need to curtail the vast powers of investigation of tax authorities. Their obligations and rights during an investigation need to be elaborated and defined. Many a time powers are abused by field formations and taxpayers face harassment during investigations. There also should be more rigour in the nature and volume of information sought by the authorities in the course of an assessment.

With the increased digitisation and enhanced use of information and communication technology, a large amount of information is being exchanged digitally. While this is convenient for taxpayers, it does put pressure if the volume of the information sought is endless. Thus, efforts need to be made for defining and laying down the exact information needed during an investigation.

Separately, there should be consistency in the positions taken by the tax authorities across jurisdictions. Today, varied practices are being followed, with different viewpoints and precedents emerging across the country. This affects the business practices of taxpayers, as taxpayers are split on the position to be adopted in case of complex tax matters.

The new addition of introducing ‘faceless appeals’ reform under income tax laws will also encourage maximum governance with a limited human interface of regulators. While measures related to faceless assessments by way of online filing and processing of returns, issuance of refunds, and assessments are already in place, the Budget speech indicates implementation of ‘faceless appeals’, which will be on the similar lines and implies reduced human interface. This is a welcome reform towards improving tax administration and creating efficiency in completion of appellate level proceedings. Of course, care should be taken that the right of the taxpayer to appropriately present his case is not abridged in the process.

It is noteworthy that the idea for ease of doing business norms is well integrated into the indirect tax sphere, as well. GST proposals of implementing the e-invoicing regime and simplified returns with effect from April 2020 are good indicators of the same. The cumbersome refund process, which has been a bane for exporters, has been completely automated under the GST regime, providing much relief and efficiency. To further ease exports, digital refunds have been granted to exporters, with central, state and local duties like electricity duty and VAT on fuel also being available as a refund. A scheme laying down the specifics will be issued later this year. Not missing out small exporters, the Budget proposals seek to launch the Nirvik scheme which lays down a simplified procedure for claiming settlements.

There is a need to curtail the powers of tax officials. Their obligations during a probe need to be elaborated and defined