In the last decade, aggressive stand by the tax administration, high-pitched assessments, and tax controversies seem to have become routine boardroom debates in India. Business sentiment is sombre, with foreign investors being perpetually unsure of their tax position and the interpretation of fiscal laws. This, coupled with long delays in determination of tax incidence by the Advance Ruling Authority, has accentuated risk on tax.
As a dynamic emerging nation, India’s long-term economic outlook is to create a relatively predictable business environment. One way to attain the objective, give the fiscal context, is to insulate the tax system from the varying individualistic notions of field officers who man the administration, and address any inequitable excesses that frequently disturb business tranquillity. The timeline of the announcement for a charter on taxpayer’s rights, thus, cannot be overemphasised.
Internationally, India is considered an increasingly aggressive tax jurisdiction owing to high-pitched assessments, frequent tax controversies, and the government’s tendency to appeal to a higher appellate forum. Even in the case of a bonafide interpretational dispute, taxpayers could invite stringent penalties. These incidents, besides inviting negative media, also shake the confidence of investors. The Union finance minister, presenting the budget proposals for FY21, emphasised an urgent need for the creation of a trust-based tax environment. The FM announced that a Taxpayer’s Charter shall be enshrined in the income-tax law: “Any tax system requires trust between taxpayers and the administration. This will be possible only when taxpayer’s rights are clearly enumerated. Towards this end, and with the objective of enhancing the efficiency of the delivery system of the Income Tax Department, I propose to amend the provisions of the Income Tax Act to mandate the Central Board of Direct Taxes (CBDT) to adopt a Taxpayers’ Charter.”
A charter, typically, is a unilateral measure by an authority, and sets out the rights and privileges granted by the authority to its subjects. It is noteworthy that a Citizens Charter does exist as part of the department of revenue’s mission, though its implementation in spirit is circumspect. Further, the Citizen’s Charter has no legislative backing, and has not enumerated consequences in case of non-compliance. As a result, it failed to safeguard taxpayers’ interests so much so that most were not even aware of the contents of such a Charter. The FY21 budget has now extended legislative sanctity to such Charter by giving it statutory force.
Internationally, many countries have adopted a Charter for taxpayers. However, their legislative sanctity varies from nation to nation. Countries such as Italy and Spain lay down the rights and obligations of their taxpayers with legislative instruments which Parliament and courts can enforce; countries such as Australia and Canada do not have any legislative backing to their taxpayer’s charter. India seems to be following the example of the United Kingdom, wherein the legislation mandates the tax administration authorities to have a Charter, and, further, for its content to be published.
The extent of rights covered in such charters also differs significantly. However, the common thread running across nations is the articulation of fundamental rights that are expected to be respected by the revenue department in its dealing with taxpayers. To elaborate, the UK Taxpayer’s Charter provides for the right to be treated respectfully, that to efficient and effective services, and the right to fairness and confidentiality. The tax charters of Canada, France, Ireland, and South Africa contain rights with respect to confidentiality, secrecy, and privacy, and are further protected under Common Law. The UK Taxpayer Charter is unique in that it does not enumerate the rights of taxpayers, and instead sets out details of expectations from them and the revenue department vis-a-vis each other. Expectations form the basis of the rights and obligations of taxpayers, and are based on fairness, honesty, integrity, efficiency, and mutual trust. In the United States, the tax administration agency ensures that every taxpayer is aware of their rights, and widely publicises these.
Details on the content of the Taxpayer’s Charter are yet to be announced. One expects that it will enumerate the fundamental rights of taxpayers, and basic standards of services. It is of paramount importance that such enumeration is not merely an abstract statement of ideals like fairness and integrity, but also includes enforceable rights, for example, an efficient and time-bound redressal mechanism for delays in refunds. A taxpayer must also have the assurance that any information/data submitted to tax authorities will remain confidential, and won’t be used except as per legal requirements. Further, there should be enshrining of the provision that media publicity that causes embarrassment to the taxpayer is to be avoided unless charges against the taxpayer are proven. Presumption of the taxpayer’s honesty must be the guiding philosophy. Thus, the burden to prove that the taxpayer had dishonest intent should be the revenue department’s and not the taxpayer’s. It goes without saying that respectful behaviour towards taxpayers, with clear articulation of limits on exercise of discretionary power, is indispensable.
Equally important, the charter should prescribe consequences for violation of such rights. Absence of an enforcement mechanism will render the charter toothless. The forum for grievance redressal must, without doubt, sufficiently empower action against officials violating the charter in law or in spirit. For illustration, in the US, the Internal Revenue Service (IRS) has a separate department, Taxpayer’s Advocate Service, to assist taxpayers in resolving problems with IRS. India shall have to be mindful of failed experiments—for instance, the institution of ‘ombudsman’—and lessons from these must be factored in the enforcement of the charter’s stipulations.
A taxpayers charter is clearly a step in the right direction. Only effective enforcement of such rights will bring parity to taxpayers, and encourage investors’ sentiments. A mere statutory backing will not be enough—effective enforcement is key to its success. It is time to walk the talk on the government’s commitment to treating taxpayers as customers by bridging the trust deficit with the implementation of the taxpayer’s charter.
With inputs by Shankey Agrawal, Principal associate, BMR Legal
The author is Founding partner, BMR Legal (Views are personal)