Resolving tax disputes PDF Print E-mail
Tuesday, 07 February 2017 00:48
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Despite it becoming such a big issue, no law on this


With tax disputes continuing to balloon, and the term tax-terror continuing to stick, resolving tax disputes has become an essential way to judge the government’s performance—in the five-year period 2010-11 to 2015-16, while total tax collections rose 1.8 times from R7,93,071 crore to R14,55,648 crore, disputed taxes rose 3.6 times from R1,88,010 crore to R6,83,188 crore; as a share of total tax collections, disputed taxes rose from 23.7% in 2010-11 to 46.9% in 2015-16. While data for 2016-17 isn’t public yet, by all accounts, there hasn’t been any great reduction—indeed, finance secretary Hasmukh Adhia is on record saying that, with the last dispute resolution scheme failing, he planned to look at the matter afresh. Part of the reason for the failure of the last resolution scheme, of course, is that it dealt with cases before the appeals commissioner and was, therefore, limited in nature.

At a more fundamental level, the issue is that the income tax law does not have any provision for resolution or, to use tax jargon, for compromise. Under the current law, the best that is on offer is a waiver from interest and penalties but a full payment of the original tax demand—so, if a company is facing a R10,000 crore tax demand, on top of which the interest and penalty is another R15,000 crore, the taxpayer will have to at least pay the original R10,000 crore. But, and here’s the problem, in most cases, it is alleged the original demand—in this case, R10,000 crore—is mala fide, so where is the question of paying the R10,000 crore? It is here where ‘compromise’ comes in. Let’s say a Vodafone does not agree with the original tax demand but is willing to pay half of it because it wants to move on—getting even this amount is a big deal, but under the law as it stands today, there is no one who can take such a decision, not even the finance minister.

It is getting such a law in place that Adhia needs to focus on. Given such reduction in the tax liability—quite the same as the haircut a bank can take on the principal loan while selling off an NPA—can open up the taxman to the charge of corruption, the best way to do this is to set up a committee to come up with some broad guidelines on haircuts and perhaps even examine the bigger cases. Once this is done, an outside panel comprising non-tax individuals, perhaps including a former judge, can also be brought in to take a second look at the recommendations and opine on it. If this is not done, as in the case of NPAs, India’s disputed taxes will continue to pile up at a faster pace.


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