While presenting
Budget 2017, finance minister Arun Jaitley had described India as "a tax non-compliant society".
One year on, on the day of the Budget 2018, the number of taxpayers has increased by about 5.6 million and collections by about 18.7%. But the lack of trust between taxpayers and the income-tax (I-T) department that is the basic malaise plaguing the system, largely remains unaddressed.
According to the Comptroller and Auditor General's (CAG) 2017 report, between 2011-12 and 2015-16, while revenues grew from Rs 4.93 lakh crore to Rs 7.42 lakh crore at 10.76%, arrears increased at a much faster pace: by 19.21%. By 2014-15, they began exceeding the figure of actual collections. On the face of it, the situation is as serious as a firm whose receivables exceed its annual revenue.
Almost the entire demand comprises amounts that the I-T department admits are difficult to collect since they relate mostly to taxpayers who are not traceable, or are in liquidation, or whose assets are inadequate for recovery. But by far, the most critical cause seems to relate to amounts locked up in appeals before various fora.
Data for 2015-16 reveals revenue locked up in proceedings before the I-T appellate tribunal (Rs 1.36 lakh crore), high courts (Rs 1.61 lakh crore) and the Supreme Court (Rs 0.07 lakh crore). So, of the total arrears of Rs 8.24 lakh crore for 2015-16, nearly Rs 8.20 lakh crore (99.51%) were locked up in appeal at different levels. The position is substantially the same for other years.
Field experience suggests that a large majority of appeals are decided against the I-T department. In 2013-14 and the first half of 2014-15, it lost 75% of the appeals filed by it before high courts and the Supreme Court.
So, the net revenue effect of the additions made by assessing officers does not appear to be large and hardly commensurate with the time, money and resources expended in making the additions. The bulk of the revenues — 81.2% in 2015-16 — comprised taxes paid voluntarily by taxpayers as advance tax, or as self- assessment. Post-assessment collections comprised only 7.46% of the department's collections.
Waiting for Returns
The I-T department scrutinises less than 1% of tax returns every year, even though this seems to be a major deterrent against evasion as well as legal avoidance. The very large unsustainable and uncollectible demands it creates, however, raise serious questions. Why does the department create these demands in the first instance? And if they have been raised, why shouldn't it be able to settle them without having to wait for years?
Assessing officers explain that not to make additions to returned income may invite charges of incompetence from their seniors. This is because one of the parameters for initiating such proceedings, as laid down by the Supreme Court (Union of India v. KK Dhawan, 1993), is the conferring of an undue benefit on a taxpayer. So why should an officer risk falling into avigilance trap by acting fairly and according to law when he can get away by just erring in favour of revenue? This attitude now perm ..
Senior officers also adopt this risk-free approach when they file appeals, knowing fully well they will not succeed. In the 2014 'Commissioner of Income Tax v. Larsen and Toubro' case, the Bombay High Court took cognisance of this tendency and directed disciplinary action against the commissioner concerned, and imposed costs of Rs 3 lakh on him.
Complex laws and procedures, leading to litigation, rent-seeking and high compliance costs for taxpayers are the inevitable consequences. The obvious solution must surely lie in making officers more accountable for their decisions. Developing alternative dispute settlement mechanisms for resolving disputes expeditiously could also help.
The current way in which the I-T department functions is only illustrative of the kind of difficulties citizens face in their interaction with GoI. These detract quite considerably from the 'ease of doing business', indicate a lack of social capital and are major obstacles to development.
Making It Less Taxing
The central and state governments must continue with their efforts to improve 'ease of doing business'. Incremental reforms in procedure — such as permitting citizens to self-certify documents rather than requiring gazette officers to attest them — have helped many, particularly in rural areas. Similarly, certain steps taken by the I-T department, such as permitting taxpayers to make their submissions and file their appeals online, save time and reduce physical contact between taxpayers and offi ..
The department's current policy of not filing appeals to the high courts and the Supreme Court where the tax effect is less than Rs 20-25 lakh has, somewhat, curbed litigation. The real problem, however, relates to attitudes. This has hardly been addressed.
Source: economictimes.indiatimes.com