Praising the taxman on the day the Delhi High Court tore into him, again, in the MakeMyTrip case appears odd, but best highlights the planned makeover, the resistance to it as well as the length of the journey that needs to be made. If the MakeMyTrip case is about the service tax department arresting a senior official of the travel portal without even issuing a show-cause notice that could be challenged in court—the department’s argument is that a show-cause will be issued after the investigations are over—the makeover, in the budget and even before it, is about reducing these arbitrary powers. So, in a very welcome measure on the day of the budget, the tax department said that in case of a difference of opinion between the taxman and the assessee on whether the income got from selling shares was a capital gains transaction or a business income—this is a big source of litigation—it was the assessee’s view that would prevail; of course, once a classification was made, the assessee cannot change it in subsequent years. The budget, similarly, took away a lot of the discretion from the hands of the taxman by changing the rules on fixing penalties—right now, the taxman has the power to levy this at anywhere between 100% and 300%. It has now been decided that the rate will be fixed at 50% should the assessee have under-reported the income and 200% should income have been hidden.
Among other suggestions of the Easwar committee that have been accepted are those on Section 14A, where an attempt has been made to reduce the discretion which deals with disallowance of expenditure and, as promised before the budget, the taxman has to grant a stay once an assessee has paid 15% of the demand. Doubling the income levels for presumptive taxation means that SMEs with a turnover of upto
R2 crore no longer need to maintain detailed books of accounts for income tax purposes—indeed, in a welcome move, this facility has also been made available to professionals with an annual income of under R50 lakh. Given the delays in settling cases, legislating a dispute resolution scheme with assessees being able to settle the case without paying any penalty—in cases of up to R10 lakh—is also very welcome.
Welcome though what has been done is, it is just the beginning of a long journey. While getting the taxman to behave differently will take a lot of time, a large part of the problem is also political. Had the finance minister, for instance, decided to do away with income tax exemptions and simply raised the limit before which taxes are applicable, that would have simplified the tax law considerably—on the corporate tax side, of course, this is to be done over a period of 4-5 years. Similarly, not getting rid of the retrospective tax amendment was a political call, and it will be hard for anyone to believe things have changed for the better till such cases are disposed off—forcing a Cairn or a Vodafone to pay the principal amount on threat of seizing their assets cannot possibly considered resolving the matter. And while the government had said it would set up a tax policy council to examine tax proposals before they were implemented, the fiasco over the
EPFO shows this is far from happening even now—contrary to what the government would like to portray, the EPFO outrage is over bad tax policy and not about taking away benefits from the better off.