Structural Tax Reforms: A New Leaf in the Indian Economy

Profile of the Author: Dheerja is a 4th-year B.Com LL.B (Hons.) student of University Institute of Legal Studies, Panjab University, Chandigarh. She has a keen interest in the Constitution, Economics of Law, and Minority Rights.

“Taxes are the lifeblood of government and no taxpayer should be permitted to escape the payment of his just share of the burden of contributing thereto.” [1]

Introduction

The progression of an economy is proportional to the strength of its tax structure. The Indian tax structure has transitioned intrinsically in the past to augment the economy. One such paradigm shift was the introduction of the Goods and Services Tax in 2017, which is a comprehensive, multi-stage, destination-based tax levied on every value addition intending to remove the inherent flaw of multiple indirect taxes that is the cascading effect. Since then, the government has implemented various amendments to enhance the income tax base because according to the Income-Tax Department Report 2018-19, [2] only 1.46 Crore individuals paid tax as opposed to 5.78 Crore individuals who filed tax returns. Moreover, according to the Ministry of Statistics and Programme Implementation, [3] the GDP of India was at 4.5% in July 2019 in contrast to 6.8% in July 2017. The GDP has engaged in a further downward trajectory Post-COVID-19 Pandemic.

To address the imperative predicament of a plummeting income taxpayers base, the Modi Government launched ‘Transparent Taxation-Honouring the Honest’ scheme as an extension of the E-assessment scheme previously employed for 58,319 cases [4] in September 2019 out of which 8000 cases have been disposed of. It has now been enforced to include all assessments under Section 144 of the Income Tax (IT) Act except for central charges and international tax. The objective of the Transparent Taxation is to accomplish ‘Faceless Assessment, Faceless Appeal’ and operationalise ‘Taxpayer’s Charter’. The vision of the scheme is minimum government intervention and maximum governance to ensure ‘Painless, Seamless, and Faceless’ taxation process.

Additionally, the Central Board of Direct Taxes (CBDT) has operationalised many tax reforms by streamlining direct tax laws. The Dividend Distribution Tax was abolished while the Corporate Tax rates were reduced from 30% to 22% in 2019 ensuing Taxation Laws (Amendment) Ordinance of 2019. Correspondingly, the Corporate Tax was reduced to 15% for new manufacturing units. [5]

The Direct Tax Vivad se Vishwas Act, 2020 was enacted to provide swift resolution of impending tax disputes and expedient collection of revenue. Subsequently, the CBDT introduced the Document Identification Number to intensify the efficiency and transparency in the IT Department’s undertakings. It was supplemented by Pre-Filing income tax returns to simplify the compliance procedure for taxpayers.

The Finance Act, 2019 stipulates a 100% tax rebate to an individual taxpayer with taxable income up to INR 5 Lakh and enhanced standard deduction from INR 40,000 to INR 50,000 for salaried taxpayers. [6] Auxiliary, the Personal Income Tax was reformed through the Finance Act, 2020, which provides individuals and co-operatives with an alternate for discharging income-tax at concessional rates if they don’t avail specified exemption and incentive. [7]

Analysing the Wind of Change: Transparent Taxation-Honouring the Honest

According to the Union budget 2020-21, INR 8.02 Lakh Crore is under dispute related to direct taxes, of these, around 40% have been pending for more than two years. [8] The appalling fact is that the success rate of the tax department is less than 30 % in cases at all levels of appeal as asserted by the Economic Survey, 2017-18. [9] Pursuant to this, the Transparent Taxation Scheme that stands on three pillars that are the faceless assessment, faceless appeal, and taxpayer’s charter was initiated.

The faceless assessment is enacted to ensure there is no human interface between the taxpayer and the IT department, thus, curtailing corruption. The structure of the faceless assessment involves the establishment of the National e-Assessment Centre, Regional e-Assessment Centres’, Assessment Units, Verification units, and Technical Units. Primarily, the NeAC serves a notice on the assessee under Section 143(2) of the IT Act specifying the issues for selection of the case for Assessment to which the reply is to be filed within 15 days. Then the case is automatically assigned to ReAC for scrutiny wherein personal hearings as an exception are held only via video conferencing, hence, eliminating territorial jurisdiction and discretion with the team-based assessment. All the communications shall be transmitted electronically. The CBDT vide order, under Section 119, has directed that only Officers of Investigation Wing and Tax Deducted at Source (TDS) shall be exclusive Income Tax Authorities to conduct the survey under Section 133A.

The second pillar, Faceless Appeal is legislated on similar lines of e-assessment by making amendments to Section 250(6A) of the IT Act. It eradicates interface between Commissioner and the appellant to the extent technologically feasible. It optimises utilisation of the resources through economies of scale and functional specialisation. [10] The concerns these two aspects pose are particularly regarding reassessment and investigation. With survey power being limited to only investigation and TDS units, the reassessment is hollow as currently, 30-40% cases are reassessment which will be in jeopardy with this new scheme. This is axiomatic in the fact that post-demonetisation, tax officers have found incriminating evidence against certain assessees during preventive surveys [11] nevertheless, with assessments to be done electronically such undisclosed income may ever be traced to its source.

The taxpayer charter incorporates the rights and obligations of the taxpayer. It provides fair, courteous, and reasonable treatment of the taxpayer. It stipulates a mechanism for appeal and review to provide expeditious decisions. It requires an efficient collection of revenue as it forms the basis for the welfare schemes of the largest Democracy. In the light of Puttaswamy judgement [12], it specifically delineates the privacy and confidentiality matters of the taxpayer. At the same time, the Charter comprises of duties that a taxpayer should be honest and informed citizen with accurate records of its business activities. He should also ensure timely and judicious payment of taxes.

Conclusion

As Martin Luther King Jr. quotes “You don’t have to see the whole staircase just take the first step”. Through structural tax reforms, the Government took that first step, however, without cooperation from the taxpayers, the economy will crumble as the whole staircase will be obscure.

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FAQs

Q. Which states in India have the maximum share for tax payment?

Ans. Just two states, Maharashtra (39.9%) and Delhi (13.1%) pay 53% of India's total Income Tax.

References

[1] Arthur Vanderbilt.

[2] Shipra Singh, ‘Only 1% Indians will Pay Tax This Year, Shows IT Dept Data’ (Entrepreneur 16 February 2020) <https://www.entrepreneur.com/article/346441> accessed 16th August 2020.

[3] Sudhir Mehta, ‘Tax reforms can help revive the economy’ (The Hindu 26 January 2020) <https://www.thehindubusinessline.com/opinion/tax-reforms-can-help-revive-the-economy/article30658892.ece> accessed 16th August 2020.

[4] PTI, ‘Search and Seizure, international tax cases out of faceless assessments ambit: CBDT’ (Economic Times 13 August 2020) <https://economictimes.indiatimes.com/news/economy/policy/search-and-seizure-international-tax-cases-out-of-faceless-assessment-ambit-cbdt/articleshow/77525777.cms> accessed 16th August 2020.

[5] ‘Transparent Taxation-Honouring the Honest’ (Drishti 13 August 2020) <https://www.drishtiias.com/daily-updates/daily-news-analysis/transparent-taxation-honoring-the-honest> accessed 16 August 2020.

[6] ‘Growth trajectory of direct tax collection and recent reforms’ (CNBC 8 June 2020) <https://www.cnbctv18.com/finance/growth-trajectory-of-direct-tax-collection-and-recent-reforms-6089761.htm> accessed 17th August 2020.

[7] Ibid.

[8] AIR Discussion, ‘Platform for Transparent Taxation-Honouring the Honest’ (Dr. Raj Kumar Academy August 2020) <https://www.drrajkumaracademy.com/showcurraffairs?CA_Id=2713&CurrentAffair=WA> accessed 17th August 2020.

[9] Ibid.

[10] Gopala CA, ‘All About Transparent Taxation-Honouring the Honest’ (Tax Guru 14 August 2020) <https://taxguru.in/income-tax/transparent-taxation-honouring-honest.html> accessed 18th august 2020.

[11] Uttam Gupta, ‘Time to be Honest’ (The Pioneer 18 August 2020) <https://www.dailypioneer.com/2020/columnists/time-to-be-honest.html> accessed 18th August 2020.

[12] Writ Petition (Civil) No. 494 of 2012.