The chairman of the Tax Administration Reform Commission (TARC), Parthasarathi Shome, who has advised over 35 tax jurisdictions on tax policy matters, believes that even though the Budget FY16 has taken steps towards expanding the tax base, much more needs to be done, especially considering the fact that the number of taxpayers has remained stagnant over the last 10 years. In an interaction with Mukesh Butani, partner, BMR Legal, he adds that before adopting the GAAR we need appropriate preparation and training of officers. Excerpts:

For the past several years you have championed the cause of ‘customer focus’—i.e. the tax department needs to be more customer-focused and treat the taxpayer as a customer. So, when you see the Prime Minister expressing dissatisfaction recently with the Central Board of Direct Taxes (CBDT) over the public grievance redressal and behavioural concerns, do you feel vindicated?
You are right. Customer focus is an area where Indian tax administration has historically underperformed. I also agree that the Prime Minister’s statements time and again on giving customers—i.e. taxpayers—the real importance and for the tax administration to respond to this need is not only a step, but it’s a movement in the right direction that is taking place. The success will depend entirely on how effectively the tax administration responds to this issue.

You must be an extremely satisfied man with your term as the TARC chairman; the Budget found a very specific mention about the TARC recommendations and the new government’s commitment to implement these. What are your thoughts?
Indeed, I am satisfied with the statement that the TARC recommendations are in an advance stage of consideration and will be implemented in FY16. However, I am awaiting, together with other commission members, as to the manner in which the recommendation will come forth.

Far-ranging recommendations on a varieties of issues! If you were the decision-maker or the finance minister, what would be the low-hanging fruits for you?
First, the large taxpayer unit (LTU) which was not so successful so far. The LTU has to be reorganised and, following examples from much of the world, create a large business service in which all the common functions between indirect tax and direct tax should be combined and implemented to the benefit of the good taxpayer, as well as for monitoring and internalising the benefit of tax collection for both the departments. The current institution of the LTU requires an overhaul. The second low-hanging fruit is dispute resolution.

How do you view the proposals in Budget FY16 (reduced corporate tax rate to 25%, imposed surcharge on the super-rich, abolished wealth tax and addressing black money issues) in the context of the larger strategy on widening the tax base?
I think these steps do take a leap forward towards expanding the tax base, because with lower tax rate, you will have more investments and a larger tax base. However, I think we also have to really push forward as far as expanding the taxpayer base is concerned. Between late 1990s and 2005-06, we increased the number of our taxpayers from 1.8 crore to 3.5 crore—almost double. Since then, in 10 years, we haven’t increased it at all.

On dispute resolution, the first report of the TARC dealt exclusively with the subject; subsequent reports, however, have not followed through on this subject. How we can be more competitive as a country on ADR?
We didn’t delve too much into it, because we considered some of it policy-orientated rather than administrative. However, we did make the point and we have discussed with the government that we must have both arbitration and conciliation as a part of legislation on ADR.

Foreign investors are asking whether India would embrace arbitration in tax treaty…
I certainly think so. We have to benchmark ourselves with other capital-importing countries which include advanced economies. I don’t want to say whether we are going to sacrifice our judicial independence, etc; we should see what other countries are doing, which are like-minded in approach.

In the TARC report, there weren’t just papers on contentious issues, but we said that even a new law such as GAAR should have position papers so that we don’t start off with litigation. Is it right?
Absolutely, we have said that the CBDT should come out with position papers and the tax department has to abide by them. A country such as Australia has hundreds of such papers. We have to be clear and the department has to say that this is the final word, so that, on the same issue, different AOs and TPOs do not give different views.
Personally, I do not doubt that the government is committed to implementation of the report, but I feel that, if this is to be done in a fashion as it was intended, there should be an oversight committee or a powerful body such as the Niti Aayog…
I tend to agree. Your sentence is very specific and telling, but I don’t totally agree that if the Niti Aayog is looking at real policy thought, there could be one place where it resides. But there has to be a committee or even a repeated commission with the kind of powers that our commission has with full access that would be given a portfolio of five years.

Do you think the DTC is history?
I believe it has not been buried but will be resurrected.

Would you say that 2016 is an optimistic date to implement the GST?
I would not like to say that we should postpone from 2016, but I am not sure if all essential inputs can be put in place in less than one year.

The expert committee submitted its report on taxation of indirect transfer, and the finance minister has implemented some parts of the report and some elements have been left out. What are your views?
One of the limitations was the ongoing cases under dispute. Retrospective amendments should be done away with, to the extent feasible, to give confidence to investors.

Is it better to do away with the GAAR altogether than to keep postponing it every two years?
The world is adopting the GAAR; we cannot simply have the SAAR. Transfer pricing is not enough. The main challenge is that it should be applied in the right way. We need appropriate preparation and training of officers to take place; we should not apply it till that happens.

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