The commission, chaired by Parthasarathi Shome, pointed out that revenue targets that are blind to the changing economic scenario result in tax gaps, which are mostly addressed by the authorities by putting pressure on taxpayers to contribute more or by postponing refunds that are due, especially in the last quarter of the fiscal.
Such policies would be illegal in other law-abiding societies, the commission said in its report, adding that modern tax regimes do not use 'static' revenue targets.
The consequence, unsurprisingly, is twofold -- first, a dearth of meaningful tax policy or tax administration policy and, second, an inequitable pressure on the good taxpayer, Shome said in the report.
The report also said that the practice of delaying refunds by asking for irrelevant information was undesirable and non-transparent.
The commission urged the revenue department to consider taxpayers as customers and recommended that 10% of its funds should be dedicated for delivering taxpayer services. It also suggested that the process of conducting search and seizure should be made more professional.
The shifting of focus to taxpayer as a customer and attending his grievance is very significant and calls for a transformation in the approach of revenue authorities. The government should plan for implementation of the report, said Sekar K R, partner, tax, Deloitte Haskins & Sells.
The commission also strongly recommended periodical review of rules, regulations and other tax policy measures such as exemptions to see whether they remain relevant to the prevailing socio-economic conditions. In this context, it recommended that the government should build in a sunset clause in every rule and regulation.
In order to make tax administration more effective, the commission recommended that lateral entry of experts should be allowed in specialized areas under a five year contract. Also, to improve the dispute resolution system, the present structure of commissioner (appeals) should be changed to two forums--single commissioner (appeals) and a three-member commissioner (appeals) panel, it said.