Tax disputes: ‘Faceless assessment key to solve problem’

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February 13, 2021 5:30 AM

The consideration received or receivable for e-commerce supply or services won’t include considerations that are already taxable as royalty or fees for technical services under the income-tax Act.

He also said tax buoyancy of 1.16 estimated for FY22 was neither conservative or unduly optimistic (buoyancy has been in the negative territory in FY20 and FY21).He also said tax buoyancy of 1.16 estimated for FY22 was neither conservative or unduly optimistic (buoyancy has been in the negative territory in FY20 and FY21).

Amid the perception that the various schemes for resolution of tax disputes run in recent years have yielded only moderate results in reducing the load of tax litigation, finance secretary Ajay Bhushan Pandey on Friday said the new system of faceless assessment and appeal would ‘strike at the root of the problem’ and help bring down the disputes substantially.

Speaking at the Indian Express Idea Exchange programme, he said the revised estimates of revenue and expenditure for the current financial year were realistic. If gross direct tax collections were down 6.7% on year by January, the gap would be much narrower by the end of the year, as the slump was partly due to liberal refunds of around Rs 1.91 lakh crore. He also said tax buoyancy of 1.16 estimated for FY22 was neither conservative or unduly optimistic (buoyancy has been in the negative territory in FY20 and FY21).

While data show the tax disputes continue to rise and the number of high-pitched assessment orders hasn’t come down, the official said since the launch of faceless random assessment in August last year, over 50,000 disputes have been settled.

In these cases, additional tax demands were ‘large’ only in around 4,000 or 8% of the cases, against 60% during the earlier system that involved personal interface and resultant element of subjectivity, he noted.

The recent Budget extended the new system to the appeals before the income tax appellate tribunals.

The amount involved in tax disputes were over Rs 11 lakh crore in FY19 end, as per official data, up 23% over the year-ago level; the Centre’s gross tax receipts in FY19 was Rs 20.8 lakh crore.

As many as 1.25 lakh cases, a quarter of all direct disputes, have opted for Vivad se Vishwas scheme, enabling settlement of Rs 97,000 crore in tax demands, the government has recently stated. Although the expectations regarding the scheme was much higher — the government had originally set a target to collect Rs 2 lakh crore by the end of March 2020, but the Covid-19 pandemic upset the calculations — the government still flags the scheme as a success, citing that a 1998 scheme could only mop up Rs 739 crore with resolution of a few thousand disputes and another one in 2016 managed to resolve just 8,600 cases involving a tax demand of `631 crore.

Pandey said India’s equalisation levy or the so-called ‘Google tax’ that has been questioned by the US was in sync with the principles on which an OECD framework was being worked out. He indicated that a rollback of this impost was unlikely anytime soon. “Several countries (including some in Europe) have already started taxing digital services,” he added.

Pandey said given that the world is getting increasingly more digitalised and companies are generating revenue out of transactions undertaken abroad, it’s only fair that countries get to tax such transactions that originate from their territories. Asked if the Budget for FY22 further widened the scope of the levy, Pandey said it was just a clarification. The consideration received or receivable for e-commerce supply or services won’t include considerations that are already taxable as royalty or fees for technical services under the income-tax Act.

The levy is a sort of digital tax on non-resident e-tailers at 2% on the revenue they generate in India from e-commerce supply or services. It was introduced in the Finance Act 2020 (effective from April 1, 2020) by widening the scope of an existing equalisation levy to include e-commerce players and intermediaries. Earlier, the equalisation levy (at 6%) was rolled out in 2016 and slapped on the revenues generated on B2B digital advertisements and allied services of the resident service provider. Last year’s change was brought in to nullify the advantage of foreign-commerce firms sans a physical presence in India over domestic competitors.

While many analysts have expressed doubts about the practicality of the Centre’s plan, as reflected in the Budget, to spend 1.6% of GDP in Q4 (which requires more than doubling of the expenditure in Q4 from the year-ago level, compared with 8% y-o-y growth in April-December), the finance secretary said: “Unlike in the first quarter when the lockdown led to a severe compression of spending and the ‘difficult situation’ the persisted in second and even the third quarter, in the fourth quarter, there would be big jump in spending. Traditionally also, in the last quarter, the expenditures are higher.”

In a recent interview to FE, expenditure secretary TV Somanathan said the “appetite of the starving ministries” and some ‘lumpy items’ would make the target achievable. “Past expenditure trends can’t predict Q4FY21 spend. A better indicator will be the sharp pick-up in November (48%) and December (29%). And there are lumpy items like clearance of fertiliser subsidy arrears and release of dues to FCI (shifting below-the-line food subsidy to the Budget), which will all happen in Q4, taking us close to the revised estimate (for FY21),” Somanathan said.

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