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India: Tax department to lose 'terrorism' tag

Tuesday, 20 May 2014   (0 Comments)
Posted by: Author: Vrishti Beniwal
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Author: Vrishti Beniwal (Business Standard)

Under new government, tax office to explore ways to reduce disputes

The tax department will avoid random raids to tackle the perception of "tax terrorism” and "uncertainty”, as identified by the Bharatiya Janata Party (BJP) in its election manifesto. It is also looking at ways to bring down disputes with taxpayers, while asking field officers to be more careful in their approach.

The poll manifesto of the BJP outlined the importance of a tax policy road map, so that people are aware and can plan accordingly.

The party said it would provide a non-adversarial and conducive tax environment, rationalise and simplify the tax regime and overhaul dispute resolution mechanisms.

"The tax department will go for raids, searches only when there is adequate information. We will try to avoid disputes and minimise litigation,” said a senior official.

In some big-ticket cases of multinational companies that caught media attention, he said, tax officials had valid ground to raise a demand, and the department would explain it to the new finance minister.

Ketan Dalal, joint tax leader, PwC India, said some quick steps were needed to address concerns, particularly for international investors, badly impacted by the aggressive approach, and equally aggressive interpretations, of the tax office.

Agreeing there was scope to reduce disputes, the tax department might urge the new finance minister to put in adequate safeguards, so that the motive of an assessing officer is not questioned in a bona fide decision.

In some cases, assessing officers raise a high tax demand as they feel it is better to be in favour of the department rather than being questioned.

The term tax terrorism was used by the BJP and India Inc in the light of the retrospective amendment to the Income Tax Act, which reversed the Supreme Court’s verdict in the Vodafone case. The company recently served an international arbitration notice on the government in the seven-year case, after efforts for conciliation did not yield results.

"The tax department will bring the facts to the notice of the new finance minister. He will decide what can be done. After all, it was Parliament’s decision to amend the law retrospectively,” an official said.

The Confederation of Indian Industry has said one of the biggest issues that industry has had to grapple with in the recent past has been retrospective taxation. It urged the new government to ensure that no retrospective changes are made to tax policies.

Officials said there was no quick-fix solution to correcting the perception about the tax department, but some initiatives have been taken which would show results under the new government.

One such initiative is the data warehousing project of the Central Board of Direct Taxes to store all electronic data in one place. The project will help the department scientifically collect information and be mostly adequate in its findings, but will take about three years to be fully operational.

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