The newly created multi-disciplinary Tax Policy Research Unit along with the Tax Policy Council headed by Finance Minister Arun Jaitley will help avoid committing mistakes
The newly created multi-disciplinary Tax Policy Research Unit along with the Tax Policy Council headed by Finance Minister Arun Jaitley will help avoid committing mistakes like the 2012 retrospective amendments and high-handed transfer pricing additions to the MNCs’ income.
One of the most contentious income tax provisions ever, the 2012 retrospective tax amendments, would probably have never seen the light of the day if a thorough discussion on this would have taken place within the revenue department and also among different economic ministries.
Lack of co-ordination between the two tax departments, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC), and also deliberations of the finance ministry with other economic ministries, including commerce, has been a major problem in the formulation of tax policies for quite some time now.
This is why, at times, tax measures act against the promotion of investment and better tax administration, harming the revenue interest too, in the ultimate run.
The retrospective tax amendments are still a living example of that.
The Tax Administration Reform Commission (TARC) summed up the situation in its first report presented to FM Jaitley on May 30, 2014: “The tax administrations witnessed large tax revenues becoming uncollectible due to disputes emanating from tax demands that were of a protective nature, i.e., issued just to insure the tax officials against future liability. Such disputes were commonly viewed to have had adverse ramifications for the investment climate as business decisions became increasingly difficult in an environment of growing tax uncertainty”.
The commission rightly pressed for a change in the handling of tax policy and related legislation.
At present, the tax proposals of even the two boards reach the finance minister’s table separately.
The TARC suggested constitution of a Tax Council supported by a common Tax Policy and Analysis (TPA) wing to cater to the needs of both direct and indirect taxes having tax administrators, economists, and other specialists such as statisticians, tax law experts, operation research specialists and even social researchers.
So, the government’s decision to set up Tax Policy Research Unit (TPRU) along with the Tax Policy Council (TPC) ahead of the upcoming Budget on these lines, though delayed, as it will be of any significant help only in the next Budget, is a step in the right direction.
The TPRU will carry-out studies on various topics of fiscal and tax policies referred to it by CBDT and CBEC and will provide independent analysis on such topics; prepare and disseminate policy papers and background papers on various tax policy issues; will assist The TPC chaired by FM in taking appropriate tax policy decisions and also liaison with State Commercial Tax Departments.
Every proposal of the TPRU will have accompanying analysis covering the legislative intent behind the proposal, the policy objective, expected increase or decrease in tax collection through the proposal, and the likely economic impact (positive or negative).
Headed by an officer of the Chief Commissioner level, alternatively from CBDT and CBEC, the TPRU will function under the revenue secretary.
The TPC will have 9 members to assist the finance minister in taking tax decisions — the minister of state for finance, deputy chairman of NITI Aayog, minister of state for commerce and industry, finance secretary, economic affairs secretary, revenue secretary, commerce secretary, DIPP secretary and chief economic advisor.
Whether these changes will finally culminate into merger of the two tax boards and abolition of the post of revenue secretary, as suggested by the TARC, or not, remains to be seen, but this is certainly a good beginning in improving the handling of tax policy issues.