The forthcoming Budget could unveil several administrative measures to reduce tax arrears and litigation, in keeping with the suggestions made by the Parthasarathi Shome panel about two years ago. “The Shome committee report has given several recommendations, which we are at a very advance stage of looking into,” finance minister Arun Jaitley said here, launching the platinum jubilee celebrations of the Income Tax Appellate Tribunal.
It was, however, not clear whether the minister was referring only to the administrative initiatives proposed by the panel like a “special drive” to liquidate all tax disputes or the more substantive recommendations of the committee also like abolition of capital gains tax on transfer of securities and offsetting it with a hike in the securities transaction tax.
The government had earlier acted on some of the recommendations of the panel: It deferred the implementation of the General Anti Avoidance Rules (GAAR) to assessment year 2018 and asserted repeatedly that new retrospective amendments to tax laws won’t be made. In addition, exactly a year ago, the Cabinet had decided not to appeal to the Supreme Court against the Bombay High Court decisions striking down the huge tax demands on Vodafone and Shell for share transfers.
“All cases where courts and tribunals have ruled in favour of companies that have received tax demands for issue of allegedly under-priced shares to foreign parents will not be further litigated before the apex court,” it had stated, adding that such transactions were on the capital account and did not give rise to taxable income.
In what could reassure foreign portfolio investors operating through the Mauritius route, the Shome panel had suggested that the GAAR provisions should not be invoked to examine the genuineness of the foreign investor entities’ residency in the island nation.
“Since we amend the Income Tax Act every year through the Finance Act, the Act itself has become very complicated in drafting. There is a group under Justice Easwar, which is looking at the whole question of cleaning up the Act,” the minister said.
Jaitley said that once a simpler tax system comes into place, there will be fewer appeals and further efforts would be made to bring down arrears.
“I do hope that with all these changes and an improved performance in the tribunal the arrears will be lower, our tax buoyancy will be higher and the harassment to the assessees would probably be the least,” he said.
The tax administration and reforms committee or TARC, headed by Shome, had submitted its report in June 2014. The committee, which was set up by the previous UPA government, had made several recommendations including abolition of the post of revenue secretary and the merger of Central Board of Direct Taxes with the Central Board of Excise and Customs.
The committee had also recommended a governing council to oversee the working of the two boards and setting up of a tax council to suggest policy and legislation. It had suggested a revamp of the dispute resolution mechanism along with widening the use of the permanent account number or PAN, developing it as a common business identification number, to be used by other government departments also such as customs, central excise, service tax, Directorate General of Foreign Trade and the Employees’ Provident Fund Organisation.
In their demands for the forthcoming budget, CII and Ficci have said that though they welcomed the move to remove exemptions, but demanded that the minimum alternate tax should be withdrawn or its rate should be reduced in a calibrated manner.
Referring to 2015-16 Budget proposal of reduction in corporate tax from 30% to 25% over the next few years along with removal of tax exemptions, Jaitley said, it would make the tax system cleaner and simpler and will ensure that “oppressive taxmen does not hover over us”. Moreover, India’s corporate tax rate is one of the highest among competing nations, Jaitley said.
