With taxman losing 60% cases, time to rethink policy
Given the aggressive tactics of the taxman, some of which have been reported in FE over the past few weeks, it’s not surprising the tax demands on both India Inc as well as individuals have been mounting in the manner they have. What is more disconcerting, from the point of view of the taxman, is the large increase in arrears. From R2.48 lakh crore in FY11, direct tax arrears have mounted to R4.82 lakh crore in FY13. In the case of indirect taxes, these have risen from R0.33 lakh crore in FY08 to R1.03 lakh crore in FY13. Normally that would be par for the course in a democracy where, naturally enough, assesses tend to appeal the tax all the way to the highest court in the land.
The problem, however, is two-fold. One, a third of this is not recoverable as there are no assets that can be attached or the assessees are not traceable. The larger problem, however, is that the tax department is losing the bulk of the appeals it is filing. Data from the Standing Committee on Finance shows that, in the case of direct taxes, around 65% of appeals filed in various courts including the income tax tribunals are those filed by the taxman himself. And, in the case of appeals that reach the High Court and Supreme Court, about 60% go against the taxman—it is 50% in the case of appeals filed in the tax tribunals. In the case of appeals filed by the assessees, things aren’t much better and only about a third go in favour of the taxman.
Which is why, as Planning Commission deputy chairman Montek Singh Ahluwalia said the other day, the government is looking at dispute resolution as a key factor in improving business confidence—set up an internal mechanism to see that cases are resolved mutually without the taxman appealing them all the way to the Supreme Court. The problem is, as the ongoing struggle in the Vodafone case shows, there is no process by which conciliation can take place since that involves giving up on some part of the taxman’s claims. Until this is worked out, the will-tax-can’t-collect syndrome will likely get worse.