PM hints at ‘fundamental reforms’ in tax structure, unveils taxpayers’ charter

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August 14, 2020 7:00 AM

PM unveils taxpayers’ charter; about 3 lakh tax disputes settled under Vivad Se Vishwas, tax experts estimate revenue gain at Rs 1 lakh crore

Modi said the tax system used to put taxpayers in the dock where income-tax notices became a tool of harassment leading to discouragement of honest traders and businesses.Modi said the tax system used to put taxpayers in the dock where income-tax notices became a tool of harassment leading to discouragement of honest traders and businesses.

Prime Minister Narendra Modi on Thursday launched a fully digitised system for the government’s unobtrusive interface with income taxpayers of all variety and buttressed it with a tax charter that spells out the rights and responsibilities of both the taxpayer and the taxman. He also hinted at a plan to have ‘fundamental reforms’ in the country’s tax structure.

Launching a platform for “Transparent Taxation — Honouring the Honest” through video conferencing, he said ‘faceless asssessment’ and the charter had came into immediate effect, while the facility of faceless appeal would be available from September 25. Referring to Vivaad Se Vishwas sche-me for settling legacy disputes in direct taxes, Modi said nearly 3 lakh cases had been settled un-der the scheme that was launch-ed in the budget this year. Tax experts estimate the scheme, extended up to December 31 with full benefits including inte-rest and penalty waiver, could potentially help the governme-nt mop up close to Rs 1 lakh crore.

About Rs 4.8 lakh direct tax disputes are pending in various legal forums, locking up over Rs 9 lakh crore in revenue. Of course, it is likely that the cases involving hefty tax claims would get settled via the judicial route, comprising tribunals, high courts and the apex court.

Lamenting that the taxpayer base of the country’s very low relative to its population (1.5 crore actual taxpayers against population of 130 crore), the prime minister said, “The country’s tax structure needs fundamental reforms, as the current one, with its genesis during pre-independence colonial period, (has shortcomings). Even the several changes made during the post-Independent times did not alter its foundational character”.

In recent years, the number of income-tax e-returns has seen a stellar rise across all categories of taxpayers (individuals, firms and companies), but the taxpayer base (including return filers, others who pay taxes, and whose income is below Rs 5 lakh threshold for zero tax) has grown at a much slower pace. This shows that a very large section of the assesees is finding ways, legitimately or otherwise, to claim nil tax liability. The rate of expansion of the taxpayer base has been less than creditable, especially given the fact that actual taxpayers in India is still a tiny fraction of the population as the prime minister mentioned, and very low in this relative term, compared to any developed/emerging market economies.

For instance, in the 15 years to assessment year 2018-19, the number of individuals filing tax returns grew nearly 60%, but the number of people who paid taxes rose just by a fifth during the period. Clearly, bringing people under the tax net is one thing, and getting them pay their taxes, by making available fewer avenues for evasion or even for legitimate ‘tax avoidance’ is another.

The recent year’s high growth in number of e-returns — which the government attributes to demonetisation and concerted efforts to promote compliance — has been primarily due to more among the existing assessees filing returns, rather than an increase in the number of new people/entities being added to the taxpayer base.

Modi said the tax system used to put taxpayers in the dock where income-tax notices became a tool of harassment leading to discouragement of honest traders and businesses. “So far the system was that the tax department of the city in which the taxpayers are based would handle their returns. Notices, search, survey and assessment are done by I-T officials posted in that city. With the help of technology, the scrutiny cases will now be allotted in a random manner to any city and its tax department,” Modi said. For example, he added, a Mumbai-based taxpayer’s return could go to, say, Chennai, Raipur or Ahmedabad.

Further, the assessment order passed by the team would be reviewed by another team in another city. While the extant system of manual assessment depends on one official’s decision, this would done by a team of three officials in the faceless assessment system.

“The composition of a faceless assessment teams would also be randomised by the computer. This system would ensure that there won’t be any need for taxpayers and tax officials to get familiar with each other; the opportunity to influence and pressurise would also be zero,” Modi said.

Further, he said that the department would also save on unnecessary litigation, and secondly it would also prevent undue focus on matters of transfers and postings. Similarly, appeal would also be faceless, Modi said.

The taxpayers’ charter reiterates largely implied responsibilities of the I-T department towards the taxpayers including treating assessees with ‘courtesy, consideration and respect.’ It also says the department would behave with integrity and honesty, and treat taxpayers as honest unless there is reason to believe otherwise.

“The department would have to trust the taxpayer and without any basis will not be suspicious of taxpayers. If there is some suspicion, taxpayers have the right to appeal and review,” Modi said on the taxpayers’ charter. The taxpayers can approach zonal heads to ensure compliance of the charter.

Modi said that trust had been building between taxpayers and the department, as apparent from the cases scrutinised by the I-T department, which went from 0.94% of all returns filed in 2012-13 to 0.26% in 2018-19.

In FY2018-19, over 6.3 crore taxpayers filed income-tax return but nearly three-fourth of these had declared annual income below Rs 5 lakh and paid no taxes. So only about 1.5 crore return-filers paid taxes.

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