After a year marked with frequent run-ins with foreign investors and also domestic taxpayers, the tax department has set itself a target for 2016 to simplify the voluminous Income Tax laws and follow a non-adversarial but effective mechanism of tax collection.
While the government would seek to maximise its tax revenues with a simpler set of laws, it does not want to resort to asking big companies for extra advance tax or stopping refunds to meet the revenue targets.
While baby steps have begun to reduce the litigations, most of the tax issues facing foreign investors were put to rest in 2015, which also saw the ambitious Goods and Services Tax (GST) bill remaining in limbo due to political slugfest.
Efforts were also made on the BJP’s poll promise of cracking down heavily on black money, but the initial response was no more than lukewarm when compared to the astonishing numbers that have been doing the rounds about the undeclared wealth stashed by Indians within and outside the country.
Overhang of some legacy issues, particularly the retrospective taxation facing big foreign players like Vodafone and Cairn Energy, continued although attempts were made to resolve these long-pending issues.
Government began conciliatory proceedings in the Rs 20,000 crore tax dispute with Vodafone while Cairn took the government to international court of justice to get an arbitration going in the Rs 10,247 crore tax notice. Both the cases appear set for a long-haul.
To its credit, the tax department tried to simplify some of the processes like giving immediate refund for amounts below Rs 50,000 and deciding to withdraw low-value appeals.
But with the economy picking up slower than anticipated, there was a threat of tax collection targets being missed, which the government tried to make up by raising excise duty on petrol and diesel.
A levy of a 0.5 per cent cess on taxable services was introduced to fund the Prime Minister’s ambitious Swachh Bharat campaign was introduced.
“We are absolutely confident of meeting the target of indirect tax collection and we are hopeful of reaching as close to the target in direct taxes as possible. But we would not like to achieve target by mandatorily asking some big companies to pay extra advance tax in the current year or by stopping refunds,” Revenue Secretary Hasmukh Adhia told PTI.
Summing up the year, Adhia said the thrust of the reform of tax department is to have non-adversarial, non-intrusive, and still an effective, system of tax collection.
“All these measures would give more certainty and satisfaction to the taxpayers and would lead to less litigations. Our efforts in 2016 will be to simplify the I-T law and address other issues relating to taxability of Real Estate Investment Trusts (REITs) and Alternative Investment Funds (AIFs),” Adhia said.
One of the major issues that faced the tax department in 2015 remained a huge controversy over applicability of MAT (Minimum Alternate Tax) on capital gains made by the foreign portfolio investors/foreign institutional investors for period prior to April 1.
The issues spooked the markets with FIIs threatening to pull out, but the government managed to salvage the situation through a committee under law commission chairman A P Shah which recommended non applicability of MAT for previous years.
Government’s thrust on bringing back black money gained traction with introduction of a new foreign black money law which provides for a steep penalty and tax of 120 per cent and jail term of up to 10 years.
A one-time 90-day compliance window was given to those with undeclared assets to come clean. However, the window saw only Rs 4,160 crore being declared which would yield just about Rs 2,500 crore in taxes and penalties.
The tally increased further after considering the income brought to book through disclosures of the HSBC list.
But this still remained a far cry from what was being touted about the extent of black money in the system, with some unofficial estimates putting it as high as USD 500 billion.
“The present government is very serious on the issue of black money. Various pronouncements of Prime Minister and Finance Minister have made it very clear that this government does not want to spare any effort to bring people with black money to book,” Adhia said.
‘Project Insight’ that will monitor high value transactions with a view to curbing the circulation of black money will begin from next year to widen and deepen tax base.
On indirect taxes, Government hopes of getting the GST law approved soon so as to help accelerate GDP by 1.5-2 per cent.
Hopes were dashed on this front this year after the Congress stalled passage of the bill in Rajya Sabha for two consecutive sessions over its three demands – a low GST rate of 18 per cent, no additional one per cent tax on inter-state movement of goods and the GST rate being put in the Constitution Amendment Bill.
Finance Minister Arun Jaitley opposed all the three conditions for months but appeared to be relenting when a panel headed by his Chief Economic Advisor suggested no more than 18 per cent GST rate, except for ‘sin’ goods, and scrapping of proposal to give states powers to levy 1 per cent additional tax.
But the stalemate continued on GST being included in the Constitution, something Jaitley has opposed saying tax rates cannot be cast in stone and the government must have leverage to tinker with rates in during emergency situations.
As a result, the GST rollout date of April 1, 2016 appears almost impossible to meet now.
On steps to reduce litigations, Adhia said the major cause of large-scale litigations is various exemptions and deductions given under the existing income tax law.
“We have already announced a roadmap for phasing out of such incentives over a period. When such exemptions are removed and tax law is simplified, the litigations would come down further,” he said.
Adhia said the government has been able to put to rest some of the issues in which the foreign investors were facing uncertainty regarding their taxability.
Besides, the tax department has put in place a mechanism for giving immediate refund in cases where the refund amount is below Rs 50,000 and withdraw low-value appeals in which tax effect is less than Rs 10 lakh and Rs 20 lakh from ITAT and High Courts respectively.
To curb circulation of black money, quoting of PAN has been made mandatory for cash and card transactions of Rs 2 lakh except for hotel bills and air travel where the limit was set at Rs 50,000.
During April-November, direct taxes which include income tax and corporate tax, grew 12.63 per cent to Rs 3.69 lakh crore. This is 46.26 per cent of the budgeted target of Rs 7.97 lakh crore.
Indirect tax collection jumped 34.3 per cent to over Rs 4.38 lakh crore during April-November period. Thus achieving 68 per cent of the Budget estimates of Rs 6.46 lakh crore for full fiscal.