By Aparna Khatri
With global economies sliding towards recession triggered by the pandemic and the Russia-Ukraine war; inflation graphs witnessing new highs; and the dream of the incumbent Government to take India to USD 5 trillion economy milestone, the upcoming last full Budget to be presented before 2024 general elections is expected to bring a ray of hope.
Per the World Bank Report of 2020, India ranked 63rd in a global ranking among 190 countries, in the category of ‘Ease of doing Business’. This was a commendable feat with India jumping up the charts by 67 ranks in 3 years. One of the important parameters considered for said ranking is the tax environment in the country. Needless to say tax certainty which is manifested in the form of reduced litigation would go a long way in improving India’s ranking further.
Here are some of the tax policy changes that could be considered by the Finance Minister in Union Budget 2023 to serve as a roadmap towards New India.
Rationalise tax withholding framework: There are a plethora of sections providing various tax deduction/ collection at source rates for different streams of payments, and this number seems to be steadily increasing. In certain cases, a single transaction, for example, sale of goods, may be subjected to both tax deduction and collection at source. In other instances, various interpretation issues arise, like in the case of withholding on perquisites in case of Section 194R, distinguishing between technical fees versus professional fees under Section 194J, etc., which further complicates matters. All this calls for shifting focus on compliances and disproportionate time and resource spent by businesses, which is contrary to the ethos of Ease of doing Business.
With the objective of reducing the compliance burden, the Government could look at measures to eliminate TDS overlap between provisions of the Income-tax Act, 1961 thereby reducing the scope of litigation due to different interpretations, consolidation of various TDS / TCS rates/provisions under a limited number of categories and streamlining the number of tax withholding rates to two or three, for example, 1-2 per cent and 5-7 per cent. The reduced rates will also aid in boosting working capital of business which are already under severe cash strain.
Bolstering tax litigation infrastructure: Income tax litigation has reached alarming proportions leading to uncertainty in the minds of the taxpayers. The Finance Minister, in Budget Speech 2020, stated that there were 5 lakh cases pending on just direct taxes at various levels. Based on then available data, an estimated sum of Rs 49,600 trillion has been locked up in the tax litigation. Some of the suggestive measures that the Government could mull over to cut down litigation could be further raising the monetary threshold limit for the Tax Department to file appeal before Tribunal, High Court or Supreme Court; increasing judiciary infrastructure and resources, formulating dedicated benches for disposing similar issues, and increasing number of personnel allotted for tax department representation.
Settlement of pending litigation: Vivad se Vishwas scheme, that was introduced in Budget 2020, was a welcome move by the Government to settle pending disputes: with close to 1.46 lac number of disputes being addressed of which 1.32 lacs cases settled resulting in disputed tax amount settled as per the declarations filed of nearly Rs 997 billion and collections of appx. Rs 537 billion against disputed tax the programme was a clear success. The Government could consider formalizing a permanent scheme for dispute resolution for taxpayers who do not intend to litigate and want to buy peace. This will not only result in reducing disputes but also optimize the Exchequer’s spend to tax collection ratio. Further, there should be provisions for enabling negotiations between the Tax department and taxpayers at the initial assessment stage itself.
Embracing alternatives to dispute resolution: Alternate dispute resolution processes like the Advance Pricing Agreement (APA)/ AAR (now Board for Advanced Ruling) are indeed welcome and go a long way in nipping disputes in the bud. Though introduced with an honest intent, these Forums are crumbling under the weight of rising applications at one end and inadequate support at the other. CBDT needs to strengthen the regime with necessary infrastructure to facilitate faster disposals. According to the latest statistics, clearing the current backlog of cases in APA itself could take more than five years, making the process less attractive. Further, composition of the Board for Advanced Ruling should be made revenue independent, and their orders should be binding on the Tax department to make the program a success.
Digital is the new normal: COVID-19 pandemic has taught us a new way of life. Faceless assessment to virtual appellate hearings have become the ‘New Normal’. With things going back to normal, the CBDT could improvise the infrastructure for virtual representation to trim down the time spent on litigation.
Summing up: The above thoughts voice only some issues which taxpayers and tax practitioners face in routine. The earnest hope is for dispensation to deliver on some, if not all of them. While taxes (like death) are the only constant in life, the process should not become an irritant but encourage taxpayers to become willing contributors to the task of nation building.
(Aparna Khatri, Consulting Director & Salika Kothari, Senior Manager, Rajeshree Sabnavis & Associates.The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)