Cutting pending disputes by 60% is a massive shift
Given the bad reputation the taxman has got over the last few years with the retrospective tax amendment and over R2 lakh crore worth of transfer pricing adjustment orders, it is not surprising the government is looking for a serious makeover. After all, it is not as if the taxman’s aggression is yielding much more than a bad name. In FY13, the taxman won just 20% of cases fought at the income tax appellate tribunal and the high courts; it was an even lower 12% in the Supreme Court. So, with R6.75 lakh crore stuck in various tax appeals, the government is trying both a makeover of the taxman as well as to collect some part of these taxes. Apart from the panel that has been set up to oversee any further use of the retrospective tax law, a panel has been tasked with examining a sample of old cases to see where the taxman has gone wrong and to look at how to strengthen the dispute resolution mechanism. The latest, as FE has reported today, is to set ambitious targets to cut the number of existing tax disputes at the initial stage of appeal by around 60%. Though this will not translate into an equal amount of tax collections, but it is worth keeping in mind that around R4 lakh crore—the total is R6.8 lakh crore at all levels including the Supreme Court—of direct tax disputes are stuck at the level of the commissioner of income tax appeals (CIT-Appeals).
The 243 existing CITs have been set a target of settling nearly 1 lakh of the 2.2 lakh pending cases. Apart from this, another 40,000 cases are to be settled by a new lot of CITs that are to be appointed. This, of course, could be an Achilles heel since hiring 119 senior tax officers will have to go through the usual bureaucratic rigmarole. Just getting more staffers, or getting the existing ones to work harder, will not do the trick though. For one, as the Tax Administration Reforms Commission has pointed out, if tax officials are posted in the appellate process, there will be a tendency to uphold the orders of their fellow taxmen. So, if the finance ministry is serious about the makeover, it needs to separate the tax collection and tax appellate process. Two, rather than trying to deal with individual cases, it would be a better idea to club cases under common heads, and pass a ruling on them—it would help if the new panel that has been set up also contributed by pointing out the systemic flaws in orders passed by the taxman. Imagine the taxpayer’s delight if the next letter from the taxman was not a demand notice, but one saying a pending case had been resolved.