Given the government’s fiscal constraints, the Vijay Kelkar panel has recommended a review of the Direct Taxes Code (DTC) Bill, as its implementation would result in considerable stress on the Centre’s finances. It also wants the tax administration to have a much improved data system to detect tax evasion.
The panel had been appointed to recommend on a schedule for fiscal consolidation and had given a report earlier this month. Kelkar had chaired the 13th Finance Commission, which gave its recommendations on sharing of revenue between Centre and states for 2010-15. “The Direct Taxes Code Bill, 2010, which intends to revamp the law relating to direct taxes, is likely to result in considerable unacceptable losses on a continuing basis,” the panel said.
Given the low tax-GDP ratio and the financial situation, it said there was no fiscal space for such large revenue loss. “Therefore, the Bill should be comprehensively reviewed before it is enacted into law for implementation.”
On tax filings, the panel said Annual Information Returns (AIRs) was a dated system which has not evolved. “Taxpayers have found new methods and avenues for parking their undisclosed income to escape detention,” it said. Banks, stock exchanges, etc, have to give information on high-value transactions to the tax department. Called AIRs, this information is then collated by the tax departments with the returns of an assessee, to detect any evasion. The panel said the department was better equipped to detect non-compliance with the provisions on tax deducted at source (TDS), advance tax and self-assessment tax, as the reporting system was largely computerised.
However, the panel found several gaps in the administrative procedure for collection and reporting of TDS. It recommended establishing a data-warehousing and data-mining infrastructure within the tax administration, modernising the scrutiny system to real-time assessment, mandatory quoting of permanent account number or unique identity number on all financial transactions, including opening of bank deposits and reconciliation of TDS and tax returns.
It also prescribed charging of the market rate of interest on defaulters and a penalty for such defaults and 360-degree profiling of tax payers. It also wanted all the pending refunds to be issued at the earliest, to inspire confidence in tax compliance.
