Move to ensure greater tax compliance

Expansion of income tax-related IT platforms and Service Tax Compliance Encouragement Schemes are expected to enhance compliance

Finance Minister P Chidambaram has focussed on improving the tax administration in the Budget instead of tinkering with the basic tax rates. The setting up of a commission for tax administration reforms, the opening of another large tax payer unit at Kolkata and the expansion of the scope of annual information return for income tax purposes are among the main steps announced in the Budget.

"An emerging economy must have a tax system that reflects the best global practices," said Chidambaram and added, "I propose to set up a Tax Administration Reform Commission (TARC) to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system." The finance minster added the fifth large tax payer unit would be opened in Kolkata shortly.

Pointing out he had already taken a number of administrative measures in the last few months, Chidambaram proposed to expand the scope of annual information returns to capture high value investments, extend the e-payment facility through more banks, extend the refund banker system to refunds of more than Rs 50,000, and make e-filing mandatory for more categories of assessees.

"The Income Tax Department is rapidly moving towards technology-based processing as would be evident from the Central Processing Cell set up at Bangalore and the Central Processing Cell, Tax Deducted at Source, inaugurated a few days ago at Vaishali, Ghaziabad," he said, pointing at the enhanced capabilities of the Income Tax Department in dealing with the administration of tax payments and refunds.

In indirect taxes, the finance minster proposed to provide for MRP-based assessment with respect to branded Ayurveda, Unani, Siddha, Homeopathy and bio-chemic medicines to reduce valuation disputes.

Chidambaram also introduced a voluntary compliance mechanism for the service tax assessees. He said while there were nearly 1.7 million registered assessees, only about 0.7 million file return. "Many have simply stopped filing returns. We cannot go after each of them. I have to motivate them to file returns and pay the tax dues. Hence, I propose to introduce a one-time scheme called Voluntary Compliance Encouragement Scheme," he said. A defaulter will be able to avail of this scheme on the condition that he files a truthful declaration of service tax dues since October 1, 2007, and makes the payment in one or two instalments before the prescribed dates.
TIGHTENING THE NET
Tax Administration Reform Commission to review tax laws and application of tax policies
Direct taxes

• Expansion of the scope of annual information returns
• Extension of e-payment facility through more banks
• Refund banker system to cover more than Rs 50,000 refunds
• E-filing to be made mandatory for more categories
• Fifth large tax payer unit in Kolkata shortly

Indirect taxes

• MRP-based assessment for branded Ayurveda, Unani, Siddha, Homeopathy and bio-chemic medicines
• Voluntary Compliance Encouragement Scheme for service tax assessees