India is committed to focus on industrial growth and development of the economy. One of the significant steps is the proposed implementation of Goods and Services Tax (GST). This is the most crucial reforms that Indian economy would witness. Implementation of GST should be a new way of administering taxes.

There have been several developments the sphere of indirect taxation. Implementation of VAT on a pan-India basis and reforms in areas of administration of central taxes are examples of such steps. In the following paragraphs, we chronicle some of the issues which may be addressed by the new government as it lays down a taxation policy.

Certainty of taxes

Certainty is one of the canons of taxation. Taxation of the same transaction under multiple statutes, changes in interpretation by the judiciary etc. lead to its non fulfillment.

There are three principle central indirect tax laws, customs, excise and service tax. In this year there have been approximately 88 notifications issued on various areas of these tax laws. Add to these notifications issued under state VAT laws.

Such frequent changes in tax policies lead to the businesses being penalised for lack of preparation by the authorities and the latter’s myopic approach. Any change in law brings with it significant changes in processes, policies and compliances for the business. The tendency to effect changes with a few days’ notice leads to increase in non-compliance by such business.

To minimise this, there should be a clear stated policy for bringing about changes in the law. Pre-determined periods/months should be identified when such changes are brought about. In addition, a time of three months should be allowed after introducing a law for its implementation. This would allow the businesses to prepare themselves for making requisite changes as on date of the law coming into force.

Clear definition and coverage of taxes

A clear definition of the taxable subjects and the applicable law has been a specific and long-standing requirement of the industry. With the advent of GST such definitional issues should not arise. Any exemptions, concessions, non taxable areas, should be clearly demarcated and defined to avoid uncertainty and confusion.

Alternate dispute resolution mechanisms

Alternate dispute resolution mechanisms are being constantly explored in the private law sphere where the dispute is of a civil nature. However, in the sphere of indirect tax litigation, alternate dispute resolution has not been explored to any level of advancement (except for settlement of cases, and advance ruling where the scope of enquiry as well as settlement is limited).

Typically indirect tax litigation is resolved only at the higher level of judiciary. This leads to delay as well as overload at the higher levels of the judiciary.

ADRs are a viable means of achieving efficiencies in tax compliance & adjudication. These options should be better conceptualised and made more effective.

Change in mindset?Delivering on promises made

Currently, the authorities have a more “Revenue Collector’s” mindset. The legislative intent has often not translated into real benefit for the tax payer. Policy makers promise to deliver reforms and benefits to the tax payer; however these are often not implemented. This leads to a skew in the perception of the businesses towards Revenue policies, while the government believes that it has met its promises.

It is settled proposition that indirect taxes should not be exported. In the area of service tax, this basic tenet was made effective as late as 2005 with the advent of the Export Rules. However, despite the policy changes having been implemented, actual refunds are a mere trickle.

Similarly, refund of additional duty of customs in lieu of VAT was belatedly implemented to avoid the cascading of VAT. However, very little intent has been shown by the administration in granting these refunds.

As per the data available on the official website, Chennai alone has a pendency of approximately Rs.6780 lakhs worth of claims while JNPT-1, JNPT-2 accounts for pending claims of approx Rs.200.28 lakhs and Rs.2371.8 lakhs respectively.

Such issues should be avoided so as to ensure that the policy is followed up with action and implementation.

Automation of compliances and singularity of proceedings

It has been observed that efficient tax compliances can be achieved through automation. However, on account of physical forms, which are still in vogue and are to be issued by the department with the necessary stamps etc., such automation can be realized only in a limited fashion. It is necessary that the administration revisit automation in tax compliance and take advanced steps towards paper less filings / submissions and regular compliances.

In conclusion

Having said this, implementation of GST could be one of the significant steps in the direction of constructive changes. The introduction of the new tax brings with it an opportunity to simplify the procedures which are required to be followed by the tax payers. The provisions relating to settlement of grievances, advance rulings, etc should be carefully considered and incorporated so as to enable tax payer to effectively deal with tax controversies. Other recommendations stated above should be considered before restatement of policy on indirect taxes via implementation of GST.

?(The writer is leader of the Indirect Taxes at BMR Advisors. The views are personal. Abhishek Dutta, associate director contributed to the article)