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Transparent Taxation, Honouring the Honest (19 August 2020)

Transparent Taxation, Honouring the Honest (19 August 2020)

Why in News:

PM Narendra Modi, last week launched the platform for 'Transparent Taxation – Honoring the Honest' aimed at easing compliance and expediting refunds, benefiting honest taxpayers.

Context:

Three main features of the platform are faceless assessment, faceless appeal and taxpayers' charter. The PM said focus is on making the tax system people-centric and public friendly, “banking the unbanked, securing the unsecured, funding the unfunded and honouring the honest". According to the PM, the four factors responsible for changes in the taxation system were policy-driven governance, belief in people's honesty, the use of advanced technology and efficiency in bureaucracy.

Background:

The Income Tax Department has introduced 'Vivad se Vishwas Act, 2020' for settling pending tax disputes. To reduce taxpayers grievances, monetary thresholds for filing of departmental appeals in various appellate Courts have been raised.

Summary of the Debate

What is it:

  • The aim of this platform is to bring transparency in income tax systems and empowering taxpayers.
  • The three things which are very important about this platform are faceless assessment, faceless appeal and taxpayer charter.
  • Under faceless assessment, the assessment will be done by some income tax officer or assessing officer somewhere in India, it will not be the person who has been designated to deal with a certain number of cases within his jurisdiction. So, there would be a kind of faceless entity which would be assessing.
  • Under the Faceless Appeal system, appeals will be randomly allotted to any officer in the country and identity of the officer deciding the appeal will remain unknown.
  • The Taxpayer Charter outlines the rights and responsibilities of both tax officers and taxpayers.

                 Platform for “Transparent Taxation – Honoring the Honest” Daily ...

Responsibilities of Taxpayers:

  • The first responsibility of taxpayer is to disclose all his source of income and the expenses also, because the expenses may be the income of somebody else and that could get captured and help in enlarging the tax base.
  • It is the duty of every honest taxpayer to help the government and its effort to bring in more people who are in the tax bracket but who may not be filing their returns and paying tax.

Difference between e-assessment and faceless assessment:

In e-assessment, a taxpayer has to file the document online and judicial officer can call him whenever he wants. In case of faceless assessment, it is judicial free i.e. a taxpayer and the judicial officer may be in the two different cities.

Vivad Se Vishwas Scheme 2020

  • DTVSV Scheme was announced in Budget 2020 as “No Dispute but Trust Scheme-Vivad se Vishwas Scheme” to settle pending disputes relating to direct taxes.
  • It is an attempt to release 9.32 trillion (as on 30th Nov 2019) blocked in approximately 483000 appeals pending at various appellate forums.
  • The Scheme got assent from Hon’ble President on 17th March 2020 and became Direct Tax Vivad.

The main purpose of the scheme is to:

  • Reduce pending litigation
  • Generate revenues for the Govt.
  • Get relief from pending dispute by paying disputed tax and get waiver from payment of interest and penalty and also get immunity from prosecution.

Major direct tax reforms undertaken:

  • Government has reduced the corporate tax rate from 30 per cent to 22 per cent for all existing domestic companies.
  • Raising the ceiling levels for various individual taxpayer.
  • Wealth tax was abolished in 2016 and was replaced by a 2 per cent surcharge on taxable income of over Rs 10 crore. But the government rolled back the increase in surcharge in 2019.
  • Government has reduced Minimum Alternate Tax (MAT) rate from 18.5% to 15% to provide relief to the companies which continue to avail exemption and pay tax under MAT.

Pros:

  • The expenditure which is made through bank account will be traceable and will immediately get registered on some platform.
  • People who operate through their bank account and credit card facilities, they will not have much difficulty in filing their tax return even without the help of professional.
  • It will benefit middle class taxpayers who have only one or two other sources of income other than their salary.
  • For businesses, it will bypass financial institution channel and it will become easier, because everything will get registered.
  • Government is trying to resolve the disputes which involve very large amounts and one of the announcement which has been made was ‘Vivad Se Vishwas Scheme 2020’, which has been passed in the budget 2020 and date has been extended to December, so that people who are willing to come forward and have a dispute resolution coming through, they will not have to pay the penalty and interest if they do so by 31st December.
  • It is going to be such a change which will entirely change the face of the department as well as the tax collecting agencies.
  • The whole effort is for litigation free and transparent tax system.
  • It is a jurisdiction free assessment i.e. the taxpayer would not know; who is the assessing officer.

Way Forward:

  • It is a very good system, it is a next generation assessment procedure, it’s a faceless going to be seamless but there has to be accountability casted upon the income tax officer.
  • Any taxation system in the world should be the two way system, but India’s income tax system is more blunted, power-centric and one-way system.
  • They should have standard operating procedure; how the assessment will be done.
  • There is DRP (Dispute Resolution Mechanism) system like in the transfer pricing, so before finalising an order, there has to be a draft order, though already suggested but it should be under standard operating procedure.
  • There are so many issues where the different high courts have given different interpretational issues, one high court says this is allowable and another high court says this is not allowable, so government should clarify this issue that is; if high court has given its decision they should end the matter otherwise dispute will increase .
  • High pitch assessment orders should come down.
  • Government have raised the threshold of filing appeals at various appellate bodies. So, the idea is to bring down litigation because the department is the most active litigant, so, that should come down.
  • Government must do away with exemptions and have a clean cut law.
  • Efficient artificial intelligence system should be in place, which will have all the banks accounts of individuals together.
  • Department has so many information from various sources but they need big data analysis to make those information as a conclusive evidence.

Important points made by the Guests

Jayant Dasgupta, Former Secretary, Economic Advisory Council to PM 

  • There are issues which taxpayers have been raising about messy dealings with income tax officers if they don’t get along well on a personal level with an assessing officer, sometimes it leads to trouble. So, this has been designed to mitigate that effect and to have faceless interaction as it is for most taxpayers the returns are to be filed online in any case, so this is a step forward in that direction and to make it completely faceless as far as assessments are concerned.
  • In the case of appeals, there were 4.78 lakh appeals pending as of march 2019 and the number is steadily rising.
  • One of the things which have been pointed out again by taxpayers is that some of them feel diffident and afraid to file appeal in the same jurisdiction because they feel there could be retaliatory action.
  • This platform envisages which is going to come into effect on the 25th of September 2020 that; there would be an appeal that would be assigned to some appellate authority somewhere in India based on perhaps a random selection and then it would also be reviewed, it could not be the decision of an individual but it would probably be a collective decision of two or three people.
  • So, that again would lend anonymity and facelessness and again there is not going to be any personal appearance because the things would be online and apart from some exceptions like very serious tax evasion cases, very large tax amounts, etc., this procedure would be followed.
  • The final thing is about the tax charter, it lays down and it has already come in to effect from the 13th of April. It lays down the rights and responsibilities of various players in the whole tax assessment appeal and payment system, the duties and responsibilities of the tax authority have also been very clearly delineated, so they will have to stick to time bound schedule and there are do’s and don’ts which have to be followed by each of the player.
  • So, it is all in the right direction and there would be finally a large overlap or overhang of technology because artificial intelligence and data analytics would be used. Hence, it is going to speed up the whole process of assessment and perhaps appeals also if we develop this software very quickly. 
  • One of the things which government is trying in parallel to do is link up the bank account with Aadhar card and the income tax pan card number. So, with the developed software, the government would be able to capture all the transactions that are taking place through financial intermediary, what it will not be able to capture would be the cash transaction.

Deepshikha Sikarwar, Senior Editor, The Economic Times 

  • This itself may not bring a lot of taxpayers into the tax net, but India is moving towards a very digital data based system, so income tax is not just capturing a lot of data in the income tax returns but also they are getting data from third parties.
  • So, the third party information system is being expanded further, this capturing of data will allow income tax to sort of actually see how many people are paying the taxes genuinely and how many people are not paying the taxes genuinely and widen the tax net.
  • All this is happening through a digital system and all interface is digital, like after demonetisation there was a spurt in number of tax filers and all the interface was done through emails over income tax India portal and this is how it is going to work in new system as well.

 Sunil Garg, Tax Expert

  • While launching this platform PM Modi has said, new system will be seamless, faceless and painless. There is a procedure of assessment and the judicial officer does the assessment and they make the assessment and sometimes high pitch assessment are made just to get the demand and just to get their targets fulfilled and the department is also formed a committee to see the high pitch assessment that leads to tax harassment. Because what is the present system once a tax demand has been raised by any of the assessing officer, a taxpayer has to deposit 20 percent of that amount before going to the appeal.
  • According to the data from economic survey of India, the Income Tax department is the biggest litigant and more than around 5 lakhs cases are pending and the success rate is less than 30 percent of the appeals filed by the department.
  • In case of penalties, the success rate is less than 6 percent, only 6 percent of the penalties levied by the assessing officers has been confirmed by the ITAT (Income Tax Appellate Tribunal) or High courts.

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