Financial Daily from THE HINDU group of publications
Friday, Jul 09, 2004
Industry & Economy - Taxation
Tax admin: Reforms kept in arrears
T. C. A. Ramanujam
That was an ambitious project which could not be completed. He was also the author of innovative measures both for toning up the tax administration and for mobilising resources.
It is, therefore, disappointing that his third Budget has nothing much in terms of improving the tax administration and enhancing accountability in the Income-Tax Department.
The Finance Minister has said, "It would be unwise on my part to attempt to do tax reform in a hurried or piece-meal manner. Seven months from now there will be another Budget, and there will be an occasion to visit the subject of tax reform."
The good news first
It is a pious thought to exempt persons earning income up to Rs 1 lakh from income-tax. The simplest way would have been to provide for this straight away in the Finance Bill.
What the Finance Minister has done is to complicate the matter by introducing a new Section 88D providing for rebate of the entire amount of income-tax payable by the individual when the total income does not exceed Rs 1 lakh.
The idea seems to be to retain in the departmental register even individuals numbering nearly one crore who may not have any tax liability. The current slabs have been retained, and we have the system of tax rebates. Mr Chidambaram has declared that across-the-board relief cannot be granted unless compliance improves. The proposed measure adds to the burden of the assessing officer (AO) without enhancing the revenues.
Looking at the way the provisions have been introduced for collection of tax at source in respect of parking auctions, toll actions and mining or quarrying leases, the workload of the I-T Department would increase manifold. TDS provisions have been streamlined further to prevent splitting of contract amounts.
The threat of disallowance in computing taxable income is extended to payments of interest, commission, brokerage fees for professional or technical services to residents and resident contractors or sub-contracts, wherever TDS is not made on such payments. The definition of `income' has been expanded to include certain gifts over Rs 25,000 at a time. These are probably meant to be anti-evasion measures.
The AO is also empowered to prosecute an abettor of tax evasion even without specifying any particular instance of tax evasion by the main culprit. Company prosecution is now permitted to get over the law regarding juristic persons. These measures of course will provide deterrence.
The Finance Bills also proposes to provide for giving credit for TDS without production of a Certificate and to integrate the Tax Deduction (TAN) A/c No. with tax collection account number. Government tax deduction will now be on a par with companies and will have to file the TDS returns through the electronic mode.
The Budget was expected to do away with a whole lot of exemptions in the Act. Instead, not only are the existing exemption provisions retained but several other sections has been announced, such as Sections 80 I(A) and 80 I(B), with some more exemptions built into these sections.
A new chapter XII-G is to be inserted containing Sections 115V to 115ZC governing the introduction of tonnage tax for shipping companies. Even after such insertion, the shipping companies have an option to pay either the tonnage tax or the appropriate corporate tax.
The fundamental rule of tax administration is, according to the Kelkar task force, to render quality taxpayer services, to encourage voluntary compliance of tax laws and to detect and penalise non-compliance.
Certain amendments, such as the power to seek the help of the valuation officer, will certainly arm the AO to detect understatement of cost of construction and cost of investment.
What about accountability of the I-T Department for its failures and omissions? The Finance Minister has referred to the mounting arrears of both disputed and undisputed taxes remaining to be collected. He has promised to come up with measures to enhance collection. What are his views about the National Tax Tribunal? He has announced the setting up of a Board for Re-construction of loss-making enterprises.
What about the role of the BIFR? We have been hearing that the BIFR is on the way out for the past three years and that its successor will be the National Company Law Tribunal. Nothing of the kind has happened.
The sore point with taxpayers about the tax administration relates to the delay in issue of refunds. Dr Kelkar had suggested that the banks may be authorised to issue the refunds. Instead of the existing cumbersome and manually-operated procedure for issue of refunds, he had visualised a more efficient IT-based system. He had also strongly suggested the need for creating the institution of ombudsman in the top 10 tax-paying cities and all State capitals along the lines of the system prevailing in the banking sector. This has not happened. Nor has anything been done to give autonomy the Central Board of Direct Taxes.
This Budget would not only push up compliance cost for taxpayers but also increase the workload of the taxmen. The I-T Act will become weightier without much of addition to resources and without any benefit to the taxpayer.
(The author is a former Chief Commissioner of Income-tax.)
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