Transparent Taxation, Honouring the Honest
Topic: General Studies 2:
- Mechanisms, laws, institutions and Bodies constituted for the protection and betterment of people
- “Transparent Taxation — Honouring the Honest” platform was launched recently.
- The platform provides faceless assessment, faceless appeal and a taxpayers’ charter.
- Aimed at easing the tax compliance and also rewarding honest taxpayers in the midst of coronavirus (COVID-19) pandemic which has severely hit the Indian economy because of the rising number of cases and the lockdowns.
- The platform will add strength to the government’s efforts of reforming and simplifying the tax system.
- Under faceless assessment, the scrutiny of returns of a taxpayer will be done by a tax officer selected at random and not necessarily from the same jurisdiction.
- This will do away the need for any face-to-face contact between the taxpayer and tax official, thereby reducing the chances of coercion and rent-seeking.
- The move is expected to ease the compliance burden for assessees and reward the “honest taxpayer”, who plays a big role in nation-building.
- A faceless tax system would give the taxpayer confidence on fairness and fearlessness.
- It helps to maintain the privacy and confidentiality of income taxpayers.
- The assessment system seeks to eliminate corrupt practices by doing away with the territorial jurisdiction of income-tax offices.
Faceless appeal facility:
- This facility would be available to all citizens from September 25 (Deen Dayal Upadhyaya’s birth anniversary)
- A faceless appeal system would allow the taxpayer to appeal against a tax official’s decision without the need of making a physical representation.
- The taxpayers’ charter was announced in the Union Budget for fiscal year 2020-21 by the Finance Minister.
- The charter outlines the rights and duties of an honest taxpayer.
- It also defines the commitment of the tax department and the expectations from the taxpayers.
- It is a step towards bringing together rights and duties of the taxpayer and fixing the government’s responsibilities towards the taxpayer
In a country with a high degree of complexity of the tax system, which often comes in the way of compliance, the attempt to make it “seamless, painless and faceless” is welcome.
The income tax department is often accused of being overzealous in its pursuit of meeting the budgeted tax collection targets. This often translates to assessing officers raising unreasonable demands which leads to tax disputes and long drawn out litigation.
- As the Comptroller and Auditor General of India (CAG) noted in the compliance audit of the Department of Revenue-Direct Taxes of the Union Government in 2019, “assessing Officers (AOs) committed errors in the assessments ignoring clear provisions in the Act”, adding that “the existing scrutiny assessment procedure is opaque”.
- The extent of the problem is quite severe. According to the Union budget 2020-21, Rs 8.02 lakh crore of “amounts under dispute” relate to direct taxes. Of these, around 40 per cent have been pending for more than two years.
- According to the Economic Survey 2017-18, the success rate of the tax department in tax cases at all levels of appeal — the appellate tribunals, the high court and the Supreme Court — is less than 30 per cent.
Thus, shifting to a framework of faceless assessment and appeal — some of these steps have been in the works for some time — is a step in the right direction. Measures like automated random allocation of cases, randomly allotting appeals to any officer in the country, and ensuring the officer’s anonymity, could help reduce litigation and end taxpayer harassment.
The Way Forward
- The rights of taxpayers will need to be clearly defined, and be binding on the tax department.
- There is a need to reassess and reconfigure the working of the tax department by building capabilities to check tax evasion, and widen the tax base
- While at the same time there is a need to discourage unreasonable tax demands, and curb litigation.
Connecting the Dots:
- Critically examine the ‘Transparent Taxation – Honouring the Honest’ scheme.
- Fundamental reforms were needed in the tax system of India. Comment.