-CA Mukesh Kabra
Taxation in India goes back to Vaidik civilisation. There are enough evidences to show that taxes on income in some form or other existed even in primitive and ancient communities. Manu, the ancient law maker stated that the king could levy taxes, as per Dharm & Shastra.
Though we are the oldest approved social system having authority from various Shahstra, Dharm is still not considered as tax compliant nation. We Indians gradually moving from the league of tax avoidance to tax compliant nation despite various odds. Our taxation system is considered very complex, Orthodox and rigid compared to other developed nations. We are yet to stabilise our direct tax system despite elapse of seven decades of codified and organised Laws. Apart from complex Jio political system, poor infrastructure, snail paced judiciary, our taxation system especially direct taxation is considered one of the major road block to make India a factory for the world replacing China as preferred manufacturing hub.
Major issues of concerns and the probable solution are listed below to give desired pace to our manufacturing industry and grab the opportunity raised post COVID world due to disengagement with China: -
Retrospective Reversals/Amendments: Reversal or amendments with retrospective effects in taxation are to be avoided to keep the confidence of the investors, promoters and industry. Income Tax departments imposition of tax on Vodafone with retrospective effect has been recently struck down by the Supreme Court is a recent example. Such incident is sufficient to shake the confidence in governments hence a loss to economy as investors stay away from such countries.
Vodafone case is not the sole example but Indian direct taxation witnesses such cases every now and then. We see lot of retrospective changes in every budget or via notification. Each occasion the government assures the court of reoccurrences but repeatedly repeated. The direct or indirect taxes come from the salaried class, business, corporates and direct or indirect foreign investments. If our tax policies are not sure and certain it will always be a risky deal to do business with such country or the government. The foreign investors are very much dependent for safety of their capital on government. Benefit of estopple of law should be conferred to the assesses. If an assesses plan affairs within the four corners of Law than he/she should be appreciated and should not be penalised through retrospective amendment. Judiciary luminary Shri Harish Salve had also pointed out that multinational companies are very afraid of Indian Taxation system and India is unlikely to get much benefit from the world wide hate china movement. Though it is not much delayed and Indian Government should come out strongly to desist from such amendments in future so that we can catch a few diamonds and best companies of the world relocating from China.
Non feasible targets for taxman: Unrealistic targets given to Taxman is the mother of all evils in tax system. This leads to pressurise the assesses to declare unaccounted income which never exists. The pressure on officer to achieve the targets are serious evils lead to corruption and harassment of public at large. In India people wants to pay taxes but the kind of trauma they go through after one become tax compliance is horrible experience for him. Officers are required to fulfil their allocated targets to make their confidential report clean and regular promotions. To chase such unrealistic target officers used to resort various actions like high pitch assessment, unwarranted recovery actions for outstanding tax demand, withholding of legitimate refund etc which a sensible officer is not expected to do in normal working environment. We have witnessed hundreds of instances where a stablished business empire is ruined by tax terrorism. Allocation of unrealistic target without ground realities should be avoided to make Indian taxation system more vibrant and acceptable.
Rewarding the high taxpayer will encourage tax compliances: This is one thing where recognition to a tax compliance, sincere tax payer should expect from government. Almost 70 million people are now tax compliance post NoteBandi. People now filing their Income tax return. India is largely an agriculture-based country and Agri income is tax free. 40% population is still around poverty level. Huge portion of the population is under 25 & students, which does not contribute to the exchequer. A big portion is senior citizens. These factors exclude a large chunk of populations from tax net, most of remaining persons are filing their returns. out of total tax filers around 2.25 crore persons are either engaged in the business or profession and these persons are backbone of the economy.
We need to recognise and appreciate the contribution of tax payers. The tax compliant 2.25 crore people are not only generating crore of employment but are the large contributors to the government exchequer. Though government had taken initiative to issue certificates of various categories like gold, Silver and Bronze for their recognition but that seems too little.
Tax payers can be rewarded through various innovative ideas like preference in railway reservation, Tatkal rail reservation, preference at airport, Public transport, Tolls etc. A special passport, few seats can be reserved for honest tax payers in local government like Municipality, Taluka panchayats etc. They can be recognised as guest of honour on various government functions like Independence, republic day etc at taluka, District level. Refund back of certain percentage of tax paid by a person in his life time after attainment of retirement or specific age either in lump sum or in instalments. This single remedy will solve various problems of Indian Taxation system like high rate of tax, Absence of social security schemes for self-employed persons, poor compliances etc. If a person know that he will get back some advantage of his tax payment in his old age than it will boost his enthuses of better tax compliances.
Responsibility & accountability of the system: Poor interface with the taxpayer and the system is one of the measure enemy of the direct taxes in our country. One observation is that most litigation area in the Income Tax is international taxation and cash credit. In most of the cases referred to the appellate of courts are ruled in favour of the assesses. So, the conspiracy theory is very clear and evident that the assessment officer was acting on some motivation against the taxpayer. But the officer is never held accountable for this harassment to the tax payers. The court or the appellate authority must take cognisance of t Such cases and held the officer accountable and punish them. Non accountability induces them to work against the accepted interpretation of Law and some source of origin of corruption at lower level.
We are still dealing with the age-old laws for taxation which to be brought to current level. Language of the law should be made simple so that difference of opinion is not arising in interpretation which will minimise the litigation. Adaptation of technology and zero interface of taxman with public in tax collection can remove all evils and encourage people to come under the ambit of tax. The fear of taxman should be removed though this government have made lot of changes to increase the transparency, such as the Online processing of returns, online scrutiny of the discrepancy in the statements submitted by the taxpayer. Simplification of the tax filing, local language for filing tax and communication can be very useful tool for the tax payer to understand his tax liability.