5 ideas for new FM to end "tax terrorism"

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Ruling party BJP's election manifesto promised a slew of radical changes to both tax policy and approach to tax disputes. BJP accused the UPA govt. of unleashing 'tax terrorism' and 'uncertainty', thereby creating anxiety amongst the business class and negatively impacting the investment climate. It also called for a 'non-adversarial', 'conducive' tax environment and a tax policy roadmap, that would include a simplified tax regime and an 'overhaul' of the dispute resolution mechanism.

So what are the immediate steps that the new Finance Minister Arun Jaitley needs to take, so as to put an end to 'tax terrorism' and bring back foreign investors? 

Mohan Parasaran
Senior Advocate & Former Solicitor General of India

Arun Jaitley will be an excellent Finance MInister. The country requires a person like Arun Jaitley. He knows all the problems faced by economy. We have been walking partners and i know the concern he has for national economy. I am sure he will revive the economy.  Some of the areas the Finance Minister will need to focus on priority, are:

- Strenghten India's trade relations with neighbours. 

- Strengthen India's relation with Mauritius. 

-  Bring back black money on priority by twisting hands of Swiss banks like USA.  

-  Do away with retro amendments. 

-  Bring DTC in force as quickly as possible, with less complicated provisions.

-  Try to create machinery to reduce tax litigations, both domestic & international.

Mukesh Butani
Partner, BMR legal

The new government has challenge of sorts ahead of it — manage its fiscal affairs given the low growth momentum on tax collections and spurring growth are competing needs.

 

In terms of priorities, the new government should immediately make bold announcements to address perceptions , inspire confidence, as by implementing expert committee recommendations on retrospective laws. Jaitley must unveil, among other things, a time-bound plan for implementation of GST and DTC, announce administrative and judicial reforms for speedy disposal of tax cases locked in litigation and take forward the mandate assigned to the Tax Administration Reforms Commission (TARC) for review of tax administrative practices.

 

The impending GST rollout announcement should be speeded up. In the process, the finance minister will be expected to give assurances on compensation for losses suffered on account of VAT revenues to bring reluctant states onboard 

 

I don’t anticipate a whole lot of work on DTC implementation given the comprehensive review and recommendations of the parliamentary committee headed by former finance minister Yashwant Sinha. But instead of rushing through its implementation, it would augur well to put out the revised DTC draft as well as the rules supporting the code for public debate and industry view.

 

A time bound agenda for...

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K R Sekar
Partner-Tax, Deloitte Haskins & Sells

The biggest issue that taxpayers face today is lack of certainty and lack of uniform approach on important issues affecting industry. The lack of certainty and the lack of uniform approach lead to anarchy and thus lead to “tax terrorism”. To end this impasse, the possible approach being suggested are as follows:

Taxpayer- As a Customer

Tax payer should be considered as Customer by Income-tax department. To achieve this, the basic approach of tax officers should undergo a change. This is possible only if the tax officers are trained to work on that approach. Further each and every big tax payer or tax payer having multiple businesses should be assigned a Relation Officer.  The relation officer responsibility is not to do any assessment or administer tax but should be relation officer with responsibility to sort out tax payer grievances by interacting with various officers on behalf of tax payer. Further any issue on tax payer should be handled by relation officer. The relation officer should not be transferred to tax administration and should be exclusively trained for this purpose. Further the Tax Deducted at Source (TDS) issues should be handled out of tax payer service cell and not by assessing officer. The...

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Uday Ved
Chartered Accountant

The new Govt under leadership of Mr Narendra Modi was sworn in on 26th May. The new Finance Minister is Mr Arun Jaitley.

Over last couple of years, there has been lot of criticism and skepticism on Govt's policies with regard to taxation and FDI regime. The restrospective amendment with respect to indirect transfer of shares created uncertainty and instability on policies and had adverse impact on foreign investment.

The new FM has lot to do to create confidence and create conducive investment climate in the country.

Top items of changes on tax policies could be following.

  • Make a clear policy statement on Govt's stand on restrospective amendment in taxation laws. It would be well advised not to make any retrospective amendments except in extra ordinary circumstances and where there is clear tax evasion. The retrospetive taxation on indirect transfer of shares should be removed and there should be no withholding tax liability on this account on the payer.
  • Tax rate on royalties and fees should be restored to 10% under Income tax Act and filing of such tax returns (in the absence of a permanent establishment) may be done away with like in case of dividend income.
  • There should be concrete steps taken to promote...
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    Krishan Malhotra
    Head-Taxation, Amarchand & Mangaldas & Suresh A. Shroff & co.

    New Government should focus on gathering revenue without afflicting pain on tax payers. To start with, removing uncertainty and litigation by making the retrospective taxes prospective would send positive signal to investors. With markets expected to do better, bringing in more certainty on treatment of Mauritius investors by issuing circulars with clear instructions would help curb uncertainty. Similarly clarity on tax treatment of overseas companies holding substantial Indian assets would help spur M&A Activities. The new Government should take a pragmatic look at GAAR and uncertainties it can create from next fiscal year. Again clear dos and don’ts to tax payers and tax officers would be welcome. Government may choose to come out with comprehensive tax amnesty scheme to address black money issue. Thereafter, compliance process could be simplified to ensure voluntary tax compliance. Fast tracking implementation of GST too would help boost GDP. In order to release the money locked-up in the tax litigation, it may choose to institute tax settlement system like lok adalats wherein expeditious settlement could be offered to tax payer. 

    While larger tax reforms are expected from Modi Government in Budget 2015 in view of tight timelines the new Government should focus on low hanging fruits...

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    S.Gayathri
    Senior Vice President and Tax and Regulatory Head, Essar Energy Business

    A useful antidote to terrorism of any kind   is a combination of a healing touch, quick and visible steps towards correction of existing flaws and implementation of a strong and sustainable framework for the objective to be achieved. The essential tools for the effort being communication, accessibility, efficiency and transparency.

     

    In tax speak, the ‘terrorism’ has been the slew of actions reflecting arbitrariness, uncertainty, and extended litigation coupled with ineffective dispute resolution measures creating a climate of mistrust and confrontation. Tax laws and tax authorities came to be seen as instruments of bridging fiscal gaps without having regard to taxpayers’ sentiments. To move into a space of trust, confidence and cooperation, the new FM needs to chalk out his agenda based on three important features – simplicity, equity and efficiency. A few expectations in this regard would be:

     

    Immediate to short term:  Given the threshold at which we stand at today, there is no luxury of adopting immediate steps while leaving suitable tax reforms for an unspecified  later date. Firstly, immediate clarity is needed as to the direction of the tax framework  whether the existing legislations would continue with modifications, whether DTC would be rolled out with or without a few modifications, or it...

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    Nihar Jambusaria
    Sr. Vice President-Taxation, Reliance Industries Ltd

    1 Bring accountability for tax officers, commissioners and all involved in making assessments, deciding appeals, conducting surveys and searches. 

    2 Tone down the retrospective amendments made by the Finance Act, 2012 and make them prospective in effect. 

    3 Personal hearings of scrutiny cases be done by exception. Evidences should be adduced, explanations to be given by email. 

    4 Discretionary powers of officers, commissioners be reduced to minimum.

    Rupak Saha
    Tax Head, GE India
  • Repeal retroactive part of the 2012 amendments relating to (a) capital gains on indirect sales of Indian assets (b) meaning of “international transaction” relating to Transfer Pricing (c) definition of royalty.
  • Make necessary amendments to ensure issuance of share capital is not brought within the taxing net through Transfer Pricing.
  • Bring down safe harbor margins by 5% ( in case where existing margin is 20%/22%) to 10% ( in case where existing margin is 29%/30%).
  • Restrict Revenue’s right to appeal post Tribunal / AAR / DRP rulings.
  • Recast DRP, and measure their success based on the number of resolutions they achieve
  • Girish Dave
    Former Chief Commissioner of Income Tax

    1. The people who are involved in audit of a taxpayer should not be allowed to represent before the Assessing Officer & appellate forum.

    2. So- called aggressive tax planning as are identified in other developed nations should be identified & checked & intermediaries involved in such practices should be debarred.

    3. Discretion left in the Assessing Officers should be removed wherever it can be.

    4. There should be certification in the return of income not only by the taxpayer but also by the person who helped prepare the return to the effect that information has been fully, truly & completely disclosed & re opening of proceedings should be further made prohibitive.

    5. There should be certainty, fairness, easy understanding of tax laws with 20% maximum tax rate than the complexities with rare occasion of retrospective amendment. If necessary, such retrospectivity should be examined by a panel of eminent experts consisting of Governmental & eminent professionals beforehand.

    Sunil Kapadia
    Partner & Tax Leader (West), EY LLP

    A robust performance evaluation system with qualitative targets set for Tax Administration Officials (other than meeting collection targets) will help in ensuring a more professional approach in framing tax assessments.  Also, focus on identifying and going after tax dodgers (outside tax net) will reduce pressure on collections from existing tax assessees.  Also better clarity and certainty will help in substantially reducing/curtailing unreasonable demands, as tax payers will be able to pay due taxes on timely basis.  A robust appeal, review and stay process handled in a judicious manner will certainly help remove this stigma and go a long way in depicting that India wants to deal with tax payers in a fair and equitable manner.  Some of these recommendations may form part of TARC report which the new Government can consider to meet these objectives.

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