India’s Tax Charter

SourceIndian Express

Syllabus: GS3: issues relating to Planning, Mobilization of Resources

Context: In the wake of pandemic and slowdown in the economy, tax system needs efficiency in case selection and consistency in assessment.

Need of efficient tax system:

  • To improve tax collection:An economic contraction this year will deal a severe blow to tax collections.
  • Rising uncertainty and reducing ability to pay:  With a shrinking tax base, any calibration of rates or the tax base is difficult since a hurried approach can have wider consequences.
  • Limited policy space: the only tool available to the government to maintain its tax base is to urge voluntary compliance.
  • To increase compliance: compliance is achieved through a fine balance between enforcement and encouragement. Compliance is also a function of the perception of the administration.
  • Enforcement-driven measures are less effective: the taxpaying population has remained at a fraction (6 per cent) of the total population even after strict enforcement driven measures.
  • To encourage people: complexity can discourage individuals from filing returns. For instance, complexity is reflected simply in the difference between the number of taxpayers and the returns filed — the former exceeds that latter by around 20 million.
  • To Build trust between the administration and the taxpayer:the government has announced measures to usher in transparency in the system. This includes a taxpayer’s charter and faceless assessments.

  • India’s new charter includes:
    • Confidentiality, right to representation and fair treatment which are in line with global practices.
    • India’s citizen charter also specifies timelines for completion of different administrative processes.
  • India’s charter conveys a commitment to reducing compliance costs in administering tax legislation, holding its authorities accountable and publishing a periodic report of service standards.
  • To end personal interface, e-assessment was introduced in 2019, wherein a taxpayer could digitally respond to any query related to their return.
  • Faceless assessment: It seeks to automate the case selection and the distribution function of the assessing officer — assessment, scrutiny and drafting order — among various units located outside the jurisdiction of the taxpayer which will reduce corruption and delays.
    • This does not apply to search and seizure cases, and cases related to tax evasion and international taxation.

Concerns:

  • Poor Dispute resolution leading to poor success rate:There is evidence of inconsistent and delayed decisions often culminating in the poor success rate of the tax department at various levels of dispute.
  • Tax returns can be voluminous and the information contained therein can be unique. Therefore, taxpayers must ideally have an opportunity to explain their case in person.

Way forward:

  • It is critical that the details of tax charter are spelt out concerning how these may be implemented in practice. There is urgent need of swift coordination for the implementation of the tax Charter.
  • A tax ombudsman is needed to ensure that some of these standards are met.
  • Fair and impartial system and a time-bound resolution of matters: the new processes, with reviews and anonymity, must ensure efficiency in case selection and consistency in assessment.
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