<b>Sukumar Mukhopadhyay:</b> Jaitley's war on tax terrorism

The finance minister has done well to draw on the Shome report on tax administration reform in this Budget to move towards a more taxpayer-friendly regime

After the tax terrorism of yesteryear, this Budget is a refreshing change for taxpayers with several measures that address their genuine problems. Though the government had just 45 days to prepare the Budget, Finance Minister Arun Jaitley had access to the first part of the report of the Tax Administration Reforms Commission (TARC) chaired by Parthasarathi Shome. The report, submitted on May 30 when the Budget-making exercise was in full swing, strengthened the finance minister's hands in formulating fundamental ideas of reform rather than being bogged down by narrow item-by-item solutions.

The idea of making the department taxpayer-friendly rather than adversarial, making use of retrospective law only in exceptional cases, the introduction of a high-level committee to scrutinise fresh cases, allowing Indian companies access to the Authority of Advance Ruling and so on are all TARC suggestions. This shows that the finance minister is open to new ideas.

Also, setting out a road map is a great boon for corporate players. Now they know with certainty that the fiscal deficit target will be 4.1 per cent of GDP in 2014-15, 3.6 per cent in 2015-16 and three per cent in 2016-17. Even the indication that the government is serious about introducing the long-delayed Goods and Services Tax (GST) will boost taxpayer morale.

Let's consider some of the specific reforms in this Budget.

High-level committee: As an administrative measure, the finance minister has proposed to set up a high-level committee to interact with trade and industry regularly and determine where clarity in tax laws is needed. Based on the committee's recommendations, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) will issue appropriate clarifications on the tax rules within two months. The directions are binding on both CBDT and CBEC, a critical point for taxpayers who have long suffered from uncertainty that often leads to litigation.

Dispute resolution measures: (i) To mitigate uncertainty, the finance minister has proposed expanding the scheme of advance rulings on taxation to cover resident private limited companies. This will allow these companies to seek advance rulings for new activities they may be planning. This amendment is in the right direction, but it is not good enough. In my view, all potential taxpayers should be eligible for seeking advance rulings from the Authority of Advance Ruling.

The Authority should also have been empowered to deal with cases even after manufacture or import has started and so long as a show cause notice has not been issued. For this purpose, the definition of advance ruling in section 28E (b) will have to be amended. True, this amounts to an artificial definition of "advance" but such definitions are legal.

(ii) The dispute resolution mechanism has been strengthened by enlarging the scope of the Settlement Commission.

(iii) To hasten the disposal of appeals, appellate authorities are being empowered to hear regular appeals without considering stay applications.

Negative list: The negative list for service tax has been pruned, though not substantially. Still, it is important that the necessity to prune the list has been recognised - as has the fact that there should be no exemption-induced distortions.

Trade facilitation: An "Indian Customs Single Window Project" has been proposed to enable importers and exporters to lodge their documents at a single point. Any permissions from other regulatory agencies are to be obtained online without the trader having to approach these agencies. This will reduce the cost of doing business by eliminating the long delays involved in dealing with multiple government agencies. This is not a new idea, so its success needs to be tracked.

Having said this, there are some negative aspects to the Budget, too.

First, an amendment has been proposed to Section 15A of the Central Excise Act to prescribe an authority or agency to which information on returns will be filed by the income tax authorities, state electricity boards, VAT authorities, registered authorities and so on. The objective is to enable data to be collected to identify evaders or recover confirmed dues. There is provision for a penalty for not supplying this information. This proposal merely encourages the proliferation of one more bogus organisation or the creation of bogus work within an organisation. In short, it is a waste of effort and resources. This information is always available for the asking. And the question of the income tax authority giving information to the customs department never arises.

Second, amendments have been proposed to Section 35 F of Excise Act and Section 129 E of the Customs Act to make it mandatory for appellants to deposit 7.5 per cent or 10 per cent of the disputed amount before filing an appeal to the Commissioner, Appeal and the Tribunal. This is a retrograde step since the department's success rate in cases before the Tribunal is about 15 per cent. The department of revenue won only 10 per cent of the cases in 2008-09, 18.2 per cent in 2009-10, 17.2 per cent in 2010-11 and 19.7 per cent in 2011-12 before the Tribunal*. This means more than 80 per cent of the orders passed by commissioners are unsustainable. Making the appellant pay a pre-deposit in these circumstances is untenable.

Further, exemptions have been multiplied rather than pruned. Exemptions should have been reduced to clean up tariffs for the impending GST and to broaden the tax base.

Finally, the finance minister has done nothing to remove the root cause of the proliferation of litigation. As a lawyer, he knows exactly where the problems lie and he would surely know how to stop them.

The writer is former member of Central Board of Excise and Customs
smukher2000@yahoo.com
*Reply to Parliament Question in the Lok Sabha on September 5, 2012