Dubbed as a transformative tax reform, on August 13, 2020, Prime Minister Narendra Modi launched a ‘Transparent Taxation – Honouring The Honest’ platform via video conferencing. The main aim of this reform is best captured in the following statement by Modi during his address while launching the platform:-
“The honest taxpayers play a crucial role in national development. When, the life of an honest taxpayer is simplified, he progresses which leads to progress of the nation too.”
The resources garnered by collecting tax from the people who regularly pay tax due from them as per the laws of the land (call them honest tax payers) are the bedrock of any country’s development. This is more so for India where the government pledges to fund various development schemes/projects and welfare programs even while maintaining fiscal discipline. It is therefore imperative that the honest tax payer faces hassle free process at all stages viz. filing return, assessment, appeal, refund (if any), scrutiny etc. If, he is assured of this, he will have the incentive to share more and more from his increasing income as tax which in turn, helps in nation’s progress.
In sync with this overarching philosophy, and in particular, making tax-paying ‘painless’, ‘faceless’ and ‘seamless’ (to use phrases used by the Prime Minister), the platform stands on three main pillars viz. (i) faceless assessment; (ii) faceless appeal and (iii) taxpayers charter. While, (i) and (iii) take immediate effect i.e. from August 13, 2020, (ii) will be enforced from September 25, 2020.
The idea behind faceless assessment is to ensure that the person paying tax does not know who the tax officer is and vice versa. The return is filed electronically and assessment is also done in e-mode (call it e-assessment). Faceless e-assessment eliminates territorial jurisdiction and substitutes individual discretion with team-based assessment. The aim is to bring transparency and objectivity to the process. There could not be a more potent way of eliminating corruption that has been the hall mark of taxman – assesses interface for decades.
If, assessment of income-tax (IT) return is faceless, logically the appeal against assessment order passed by the tax officer has to be faceless. The faceless appeals would involve random allotment of cases – all system generated. With electronic replies, nil physical interface with authorities and instant solutions, there could not be a better way of tackling IT related disputes and reducing resolution time. As in case of e-assessment, the appellant (tax payer) won’t know which tax officer will be passing an order on his appeal and vice versa.
According to the Central Board of Direct Taxes (CBDT), all orders will be passed by the National E-assessment Centre (NeAC) through the faceless assessment scheme only, barring those assigned to central charges and international charges. 3500 or nearly half the strength of assessing officers have been moved to faceless assessment function and remaining won’t be doing any assessment henceforth (they could be deployed to ‘tax payer services’ head).
This massive restructuring of the institution of taxation is a reflection of Modi – government’s commitment to go full blast in implementing this unprecedented reform of faceless e-assessment and faceless e-appeal – both being harbinger of a ‘hassle-free’ and ‘corruption-free’ regime. However, there are some grey areas particularly with regard to re-assessment, investigation, tax deduction at source (TDS) etc.
Reassessment involves reopening of an already completed assessment and reassessing the total income of the assesses by including the income which has earlier escaped assessment. Currently, 30-40% are reassessment cases only and those will be jeopardy as in respect of these, surveys won’t be allowed (henceforth, surveys are permitted only in case of investigation or TDS units). This will deny department extra tax on portion of income that had escaped earlier.
The power to conduct regular surveys has been limited to only investigation or TDS units. This leads to collateral damage. During the last 2-3 years (this is post demonetization), tax officers have found incriminating evidence against certain assesses during preventive surveys carried out by them. They are waiting for the returns to be filed to check for income mismatch. Now, with assessments to be done only by faceless assessment mechanism, such ‘undisclosed’ income (a good slice of this could be black money) may never get picked up.
While, making life easier for the tax payer in the normal course, the new dispensation may not augur well for complex cases that require better understanding with the tax payer or there are issues arising from differing interpretation of the law. The government needs to debate whether these could be sorted out through e-communications alone or need to be supplemented by physical interface (with provision for video recording to guard against any dubious dealing).
The government deserves credit for making the process of filing return ‘painless’. Apart from e-filing which by itself makes the process hassle-free, the move to introduce pre-filled ITR form (downloaded from the e-filing account of individuals) with details of salary income, house property income, capital gains from securities, bank interests, dividends, etc, tax deductions and even computation of the tax liability is a great relief for the ‘honest’ tax payer. Reduced dependency of individual and small taxpayers on experts and consultants to assist in completing the ITR form is an added bonus. However, a dishonest person or someone who wants to evade, has reason to worry.
As regards the taxpayers’ charter, this was announced by the Finance Minister, Nirmala Sitharaman in the Budget for 2020-21:-
“Any tax system requires trust between taxpayers and the administration. This will be possible only when taxpayer’s rights are clearly enumerated. Towards this end, and with the objective of enhancing the efficiency of the delivery system of the Income Tax Department, I propose to amend the provisions of the Income Tax Act to mandate the CBDT to adopt a Taxpayers’ Charter.”
Modi has reiterated this when he said “The taxpayer will now be trusted, not looked at with doubt. The tax department will have to carry out the steps and processes in a time-bound manner.”
A computer-generated documentation identification number (DIN) to be launched from October 1, 2020 (DIN will be mandatory for every type of communication with the IT department, be it a notice, a letter, an order and summon, or any other correspondence; without it, the document and communication will be deemed invalid) will result in better services to taxpayers without any possible harassment. It will empower them.
On the issue of making tax reforms ‘seamless’, as promised by the Prime Minister, there exist too many voids in the area of both direct and indirect taxation.
In corporate tax law, there are a plethora of exemptions and incentives. This makes the law cumbersome to a point whereby it makes any prospective investor scary. These also create room for bureaucratic discretion giving rise to nepotism and corruption and hampers ease of doing business.
On September 20, 2019, Sitharaman handed out steep reduction in the tax for new entities in the manufacturing sector from existing 25% to 15% which comes with no exemptions and deductions. For existing companies, the tax rate from 30% to 22% but without exemptions and deductions. However, a firm can continue with existing 30% regime with exemptions et al. Indeed, there are many who are continuing because their effective tax incidence is much lower than if they were to shift to 22% sans exemptions et al. The freedom from the present cumbersome regime won’t go away merely by stipulating that ‘companies have the option to choose’.
In personal taxation law, in the budget for 2020-21, Sitharaman offered lower tax rates to persons earning < Rs 1500,000/- per annum but are willing to forego exemptions et al. This may have helped some (especially those who don’t have the money to invest to avail of exemptions et al) to reduce tax outgo. But, exemptions and deductions remain deeply entrenched.
In indirect tax too, the GST is far from being a simple tax as there are too many tax slabs, several items such as crude oil, petrol, diesel etc remaining out, a number of tax paying categories depending on turnover threshold.
To conclude, Modi has done all that is necessary to make life easier for the tax payer. Now, it is for the latter (especially those who have not been paying; currently only 1.5 crore in a population of 130 crore pay) to reciprocate. As for the tax regime, the government should scrap all exemptions/deductions; apply a uniform tax @15% on firms and individuals @7.5% on income < Rs 10 lakh and @15% on income higher than this threshold. Under GST, it should go for 2 slabs say 5% and 10% and no exclusions.