Recognising the need for an emerging economy to have a tax system that reflects best global practices, the finance minister announced in his Budget speech a proposal to set up a Tax Administration Reform Commission (TARC), which would be tasked to review the application of tax policies and tax laws, and recommend measures to strengthen the capacity of India’s tax system.
The finance minister has set up the TARC under the chairmanship of Parthasarathi Shome. It has a 12-point agenda spanning issues from improving human resource practices of the tax administration teams to deepening and widening the tax and taxpayer bases.
The genesis of the TARC can be traced to the philosophy that the government had professed to follow in shaping its tax policy, namely “clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution…”
Even before the TARC, the government started a scheme called ‘Wednesday meetings’ where Dr Shome and his team attended meetings with industry bodies and revenue officials to discuss and highlight matters in tax laws that are ambiguous and lead to uncertainty. The objective: industry would get to know revenue’s viewpoint on these matters.
The setting up of the TARC and the Wednesday meetings should be seen as aspects of the overall tax administration policy of the government and it will be surprising if they are ends in themselves. A closer examination of this supposed broader tax administration policy brings one face to face with the overarching philosophy of ‘non-adversarial’ model of tax administration.
Everybody wishes to have a ‘non-adversarial tax administration’ and it embraces all other aspects, namely clarity in law, stability of regime and fair dispute resolution mechanism. For it is only when the administration has at least these three good attributes does it command respect of the taxpaying public and only then can it become ‘non-adversarial’.
In international tax terminology there is usage of the terms ‘collaborative approach’ or ‘cooperative approach’ of tax administration. This is currently being considered by many jurisdictions as the right approach to follow for improving the efficacy and efficiency of tax administration. For example, the recently published Base Erosion and Profit Shifting (BEPS) report of the Organisation for Economic Cooperation and Development (OECD) notes “…a clear trend in relationship between tax administrations and large businesses away from a purely adversarial model towards a more collaborative approach.”
It seems the ‘collaborative/cooperative approach’ is an essential ingredient of the