Centre moots ruling authority to fix direct tax liability, settle disputes

Revenue dept to take up measures to boost tax-to-GDP ratio to 15-20%

The revenue department is considering the setting up of a ruling authority like the Advance Pricing Agreement (APA) or Dispute Resolution Panel (DRP) to ascertain tax liabilities and settle tax disputes. This will allow the Income-Tax Department and taxpayers to sit together and resolve disputes, and agree on the tax to be paid.

The direct tax claims locked in litigation are about Rs 5 trillion. The concept is part of the minutes of the meeting circulated internally last month, when the revenue department discussed measures and the road map in line with its vision 2047.

Business Standard has reviewed the minutes, which are being prepared following the annual conference attended by officials of the finance ministry and Central Board of Direct Taxes, and senior revenue officers.

At present, APA deals with transfer-pricing cases that determine tax liabilities in advance to avoid any dispute. The DRP is an alternative mechanism that deals mainly with international taxation cases.

Experts say various Authorities for Advance Ruling (AARs) take up issues from a technical standpoint and do not cover wider matters of income tax. Also AAR decisions have not helped in containing litigation because most of the matters go for appeal.

“Such a process of optional and non-binding mediation can be helpful in eliminating tax disputes, particularly those relating to transfer pricing and other matters as well,” said Akhilesh Ranjan, advisor on tax policy at PwC and former member of the CBDT.

Among other measures, the department is looking to tax the corporate sector in agriculture, phase out exemptions, and tap new and emerging sectors like crypto assets, to increase the tax-GDP ratio to 15-20 per cent.

The revenue department expects India’s direct tax collection should be 60 per cent of the revenue receipts. Currently, direct tax contributes half that. In FY22, India recorded the highest tax-GDP ratio of 11.7 per cent.

The department discussed setting up a specialised unit for examining high-net-worth individuals having more than Rs 5 crore and targeting those companies working across borders and running hawala operations.

The department is pinning hopes on global tax policy to tax digital giants like Facebook and Google. The road map also suggests amending the I-T Act, 1961 extensively.

The internal note stressed ease of compliance including filing income-tax returns (ITRs) to the extent that it could be done in 15-20 minutes. It suggests an app-based filing of ITRs, improvement in pre-filed forms by increasing data, and making data available on a real time basis are among other measures.

Other suggestions include revisiting TDS (tax deduction at source) provisions, increasing TDS coverage, reduction in the gap between the working-age population and tax filers, better investigation methods, and capacity building for information sharing with other countries or foreign jurisdiction.

The department also highlighted the immediate challenge with regard to new reassessment regime -148A, says that it requires uniformity and clarity in timelines and limitations, and should be reflecting on the I-T systems.

“Integration of legal provisions with systems are very important. We should work towards efficient system, where I-T systems should be in tandem from the date of publication of Finance Bill so that timeline mandated can be replicated in the Systems. And in case, something going to take more time to be available as facility on systems, then the implementation date which is normally April 1 should be deferred, it noted.

The department also discussed the possibility of having a zero year where there will be no assessment to catch up unresolved cases.

The roadmap

. To increase tax-to GDP ratio to 20%

. Focus on new emerging markets like crypto

. New authority for direct tax cases

. Taxing corporate sector in agriculture

. Specialised unit for high networth individuals

. Global tax policy would boost revenue

. Capacity budiljng for exchange of info with foreign counterparts  

. Easing tax return filing and other compliances

. Sync Finance bill decision with IT Systems for smooth implementation of new regime

. Possibility of zero assessment year to catch up with pending unresolved matters