Revenue secretary Hasmukh Adhia said the Rs 3-lakh limit set by the Budget for cash transactions was “too high”, even though it may not be practical to lower it at this juncture.
Despite the promises made by senior functionaries, high-pitched assessment and other modes of harassment by a section of tax officials are troubling industry. In an interview with FE’s Sumit Jha and Shobhana Subramanian, revenue secretary Hasmukh Adhia says this problem is being addressed. In the the last two years, he said, the two apex tax boards (CBDT and CBEC) have dismissed 72 officials and penalised another 193 for overreach. The secretary also said the Rs 3-lakh limit set by the Budget for cash transactions was “too high”, even though it may not be practical to lower it at this juncture. Edited excerpts:
Tax claims under dispute stood at R7 lakh crore through FY16. Has your efforts at reducing the disputes by withdrawing appeals changed the scenario meaningfully?
No, the number hasn’t come down significantly. Unfortunately, our dispute resolution scheme hasn’t been a great success.
Disputes worth around R1,200 crore have been settled, but that is not a satisfactory number. We will have to think about other means of bringing down tax claims stuck in disputes.
Is there a new scheme in the pipeline?
We would like to get into each major case and see whether it’s a case of excessive assessment or if not, find out what exactly is the problem. I would like look into the issue with my officers. We thought it (withdrawing appeals in low-value cases) was a good idea because most of the cases are at the commission or appeal level, and the thinking was that people would come forward (to settle the dispute if the claims are brought down). We have to look into the reasons of why that hasn’t happened. We have also requested the Supreme Court to expedite the high-value cases.
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The Budget has a provision under which tax officials can confiscate property to ascertain fair market value. Would this not lead to harassment and inspector raj?
By bringing in Operation Clean Money, we have established our credibility. We could have sent an inspector straight away to examine the cases but we want to work in a faceless manner. What we are assuming is a power of seizing, not confiscation, of bank accounts or property. The act of seizure precedes confiscation which means no transaction can be done through these assets. This power of seizure is with all assessing officers like ITOs and assistant commissioners but not the investigating division which actually conducts the searches.
Currently, senior officers like deputy directors and assistant directors do not have the power to immediately seize assets. What is happening is that the moment any search takes place, people move money from their bank accounts. That is why this power is now proposed to be given to a few more officers numbering around 300 in addition to the existing 8,000 or so. The present practice is that the investigating team would complete the entire investigation and then send a report to the assessing officers and then the assessing officer can issue orders for seizure, which practically takes a long time.
Under the clean money mission, you have identified about 18 lakh individuals whose cash deposits do not match with their income profile. But the actual number as read out by the finance minister is much bigger at over 3 crore. Why?
These (18 lakh) individuals are part of the first phase which targets high-value accounts only. There will be three to four phases depending on the narrowing down of accounts through data analytics. The cases in the first phases are apparent ones where there is no prima facie link between deposits and income. This data analytics has been done in-house but we would be hiring outside technical expertise also.
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The arbitration processes for big cases like Vodafone and Cairn isn’t moving. What’s holding them back?
Arbitration process takes it own time and we don’t have any control over it.
The PM had said that if tax officers indulge in raising frivolous claims then there would be action against them. What has the government done on this front?
We have made a committee in every state consisting of two principal/chief commissioners. Under a chief commissioner, there are three senior officers and they form a collegium. Any person who thinks he has got a high-pitched assessment or a completely frivolous one can approach the committee when the notice is served on her. The committee can decide to either continue with the notice or dismiss it. Apart from this, in the last two years, we have dismissed 72 officials from the CBDT and CBEC combined including six officers from Group A. Besides, we have heavily penalised 193 officers including nine from Group A. Some officers are serving prison terms after being convicted by CBI courts for charges of bribery and other offences.
The GST Council agreed to split assessment of companies with revenue above Rs 1.5 crore. How would be you apportion the companies between state and Centre under GST?
This would be through a computerised draw, meaning there would be equal division in every segment. State and central officers could sit together and decide elements of the draw as well. For example, in certain geographical areas, the Centre may not have enough presence, so the state can decide to assess all the companies while Centre takes those in the urban areas.
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In the Budget, there is a wide gap between tax of 5% and 20% in two slabs. Does this not open doors for arbitrage and create room for non-compliance?
It won’t because if your income moves up from Rs 5 lakh to Rs 6 lakh, you pay 20% rate on the additional Rs 1 lakh only.
Why did you put limit for cash transaction at Rs 3 lakh? Isn’t it too high?
I do believe it is too high. But at least a beginning has been made. People with black money would carry sacks of cash to buy luxury cars. The intention is to bring down the legal limit for cash transactions but that will happen only when cheque and other digital modes of transactions increase.
On the corporate tax front, instead of bringing down the rate for MSME by 5%, could you not have given maybe 0.5% relief across the board…
MSMEs are paying an effective tax rate of 30% while that rate for nearly 300 companies with annual profit of Rs 500 crore and above is 25%. If we had reduced 0.5% tax for everyone, it would have meant revenue loss of Rs 9,000 crore. But with a loss of Rs 7,200 crore, we have provided relief to 96% of the companies. The corporate tax will eventually come down but we need time. We can’t bite that bullet now.
The Budget also limits the interest cost that is tax deductible for a company if paid to an associate company. How much revenue was being lost due to this practice?
This is a standard practice the world over, called thin capitalisation. I do not have an estimate of the amount we have been losing but this is an anti-abuse provision. These companies will now have to fall in line.
Does reduction for MSMEs only apply to incorporated companies and not for partnerships?
Yes, the cut is meant for only incorporated firms, who also pay dividend distribution tax while others don’t. Partnerships can also earn interest of 12% on their own capital which also the incorporated firms can’t. We want to encourage firms to migrate to company format.
What is the objective of amending Section 10(38) of the Income Tax Act, which relates to penny stocks?
The idea is not to tax genuine investors. It may be possible that a genuine private equity investor may not have paid securities transaction tax (STT) at the time of entry but when it exits, it will still get the benefit of (lower) long-term capital gains tax. We will have to define genuine investors so that they could be put in an exemption list. The misuse of long-term capital gain provision will be curbed. It’s an enabling provision but we have the power to provide exemption to genuine companies. If there is any confusion anywhere in any class of people, we will look at those problems and issue a notification.