TIOL-DDT 2714
29 10 2015
Thursday

THE 'National Institute of Public Finance and Policy' took up a study on 'Development of an Analytical Model for Widening of Taxpayer's Base', commissioned by CBDT. The study states; "There have been many differing experiments in the income tax department about the need of having an expanding number of tax payers on its rolls. There could be two views on these aspects. One view is that since most of the taxes collected actually come from the tax payers at a higher limit of taxable income, there is no point in burdening the tax department with a large number of tax returns that end up in not yielding much revenue. It is perhaps with this end in view that the income tax department had exempted salaried tax payers whose income was up to Rs.5lakh from filing tax returns. However, the other view is that unless the tax department has all the potential tax payers in its records much of the cross verification through collection of information becomes meaningless ."

Highlights from the Study:

Exemption threshold: It is obvious that the number of assessees will depend upon the basic exemption limit that is put in place by the law. There is substantial erosion in the number of taxpayers as a result of increase in the exemption threshold - if the exemption threshold remained Rs 50,000, then the potential taxpayers would be over 4 times the present number.

Linking incentives to filing of returns: The shift to exemption regime from the rebate regime was followed by a change in the filing requirements which is now based on Gross Total Income (GTI) rather than on total income. Thus assuming that a person having a Gross Total Income of INR 400,000 avails a deduction of INR 150,000, he is left with an income of INR 250,000. His income is not taxable. But, under the present law, he is required to file a return of income since his GTI exceeds INR 250,000. The question is whether such types of taxpayers actually file their returns of income. Although, there is the provision of a penalty of INR 5000 under section 271FA, that may not be a good enough deterrence for such class of taxpayers to come into the tax net by filing returns of income. No criminal prosecution can be brought against such persons under section 276CC since no tax is payable. In order to get such people to actually file returns of income, it is necessary to make the deduction available under various sections like 80C contingent upon filing of return. In other words, there should be a provision to the effect that no deduction under the specified sections would be allowed for anyone having gross total income above the exemption limit unless a return is filed .

Incentivizing taxpayers: The Korean example: The South Korean experiment to incentivize use of credit cards by the SME sector as also the issue of cash receipts has drawn the world attention. The ‘credit card income deduction' scheme was introduced in Korea in 1999 and was initially available to salary earners only in recognition of the fact that this group exhibited higher transparency in reporting taxable income. One could deduct 10% of the amount in excess of 10% of total salary if the amount paid through credit cards amounted to 10% or more.

Third Party Information: The US IRS requires information returns under various heads. These are - General reporting including MISC reporting, Education reporting, Health Insurance reporting, transfer of stock reporting and retirement reporting and some times the amount to be reported may be as low as 10 dollars.

Prepopulated returns: there are certain benefits in the system of prepopulated tax returns being sent to the taxpayers. These are:

1)  a substantially reduced compliance burden for taxpayers;

2)  greater certainty for taxpayers that they have fully reported their income and properly claimed their deduction entitlements;

3) an improved image of revenue body, resulting from the more personalised service being given to taxpayers;

4)  faster processing of taxpayers' tax return information;

5)  quicker refunds of overpaid tax to taxpayers; and

6)  elimination of much of the work associated with raising amended assessments that result from unintended taxpayers' errors and/or traditional post-assessment verification programs.

From the compliance perspective, such returns by their very design will include information concerning taxpayers' liabilities that might not otherwise have been reported by them. In addition, the process of sending pre-populated returns serves as a reminder to taxpayers of the need to complete their filing obligations and thus may reduce the level of follow-up action otherwise required by the revenue body. Moreover, assisting taxpayers in these ways also may increase respect for the revenue body as, compared to traditional approaches, the availability of pre-populated returns is likely to be viewed by most taxpayers as a genuine and personalised service that was not previously available. In India, there are reports that for certain items the tax department might prepopulate the return in order to facilitate filing of returns. This is indeed a very good move and need to be progressively expanded.

Information Dissemination: Tax collection is not a pleasant function and there are always attempts to project the tax collector as a villain. A particular mention may be made of an attempt to create or at least influence the impression about the unfairness of the direct tax administration in a December 18, 2014 article by Rajiv Kumar in the edit page of the Times of India- Taxing times for make in India : CBDT will scare away investment if it is allowed to pursue witch hunts on business. After accusing the CBDT of many misdemeanours, including ‘tax terrorism' he writes: "For domestic investors and indeed for common taxpayers like you and me CBDT is a virtual terror." It is true that the CBDT had issued a rejoinder pointing out the actions taken for minimizing litigation, but it did not get the prominence that would have nullified such negative publicity. At times, the Revenue authorities themselves may contribute to the formation of such negative impression by highlighting cases of tax evasion that send the message that tax evasion is widespread. It is therefore very important for the Revenue authorities to communicate in such a manner that the signal is that most of the taxpayers are compliant but those that are not will be caught by them and punished. In fact, Tax administrations around the world have been motivated towards creating a positive image among the taxpayers through various measures over the years. One such measure is through revealed information relating to efficiency and transparency of the return process.

Administrative decisions that can aid in reducing non-filing.

- Refraining from increasing the exemption threshold too frequently - while every government has the right to decide on the exemption threshold, increases in the exemption threshold tends to erode the tax base in terms of number of tax payers significantly. Some countries even desist from correcting the exemption threshold for inflation on a regular basis.

- Limiting the benefits from tax policy incentives to individuals/agents who comply with the tax laws like filing of returns.

- Incentivizing the move away from cash to other financial instruments: it is often remarked that India continues to be a cash based economy which undermines compliance with tax laws.

Anti Dumping Duty - Resurrection even after SC Judgement

THE Board has proved emphatically that it has no respect for Supreme Court decisions. In a recent decision reported by us as 2015-TIOL-209-SC-CUS, the Supreme Court held that the Government could not impose anti dumping duty for the period between the lapsing of a notification and issue of a fresh notification. But the Government, in total violation of the Supreme Court judgement, again merrily resurrected a dead notification.

The anti dumping duty on "Narrow Woven Fabric" falling under heading 5806 of the First Schedule to the Customs Tariff Act, originating in, or exported from, the People's Republic of China and Chinese Taipei, was imposed vide Notification No. 108/2010-Customs, dated the 6th October, 2010 for a period of five years and ended on 5th October 2015.

Now, the Government has extended it till 5th day of October 2016 - 23 days after its expiry - in total contemptible defiance of the Supreme Court order. This specific issue is covered by the Delhi High Court order in the Kumho case reported by us in 2014-TIOL-1130-HC-DEL-AD.

Notification No. 52/2015-Customs (ADD), Dated: October 28, 2015

FTP - Permission for export of Finished Leather, Wet Blue and EI Tanned Leather through ICDs

IN addition to ports/ICDs notified by DGFT from time to time, now, export of finished leather, Wet Blue and EI Tanned Leather would also be permitted through ICDs at Jalandhar and Nagpur.

DGFT Public Notice No. 43(RE-2015)/2015-2020., Dated: October 28, 2015

Ease of Doing Business - India's rank improves - but we are still at 130th Rank

EVEN Prime Minister Modi tweeted, "Boost to Make in India with significant improvement in Ease of Doing Business under NDA Govt.". It is true we have moved up 12 places, but we should not forget the fact that our rank is 130 out of 189 countries. We have certainly no business to be there, when Singapore and Malaysia are at the top. If we are serious about the kind of growth that is being projected, we have to be somewhere in the top 10 - Our babus alone should take credit for our rank; they only can improve it.

Najib Shah finally makes it to CBEC Chairman's Room.

ON 1.7.2015, the post of Chairman, CBEC fell vacant. The senior-most Member of the Board was Mr. Najib Shah. Instead of making him the regular Chairman, they made him an additional charge chairman on 1.7.2015, in which post he continued all these days. After more than three months, they have finally appointed him as Chairman of CBEC. The prestigious room of the CBEC Chairman, which was lying vacant for the last three months will have its new occupant today. TIOL wishes him all success in the office.

On 1.7.2015, DDT 2631 wrote,

Najib Shah - New Chairman of CBEC - Please clarify Education Cess

Mr. Najib Shah will take over as the new Chairman of CBEC today. Sir, while there are a lot of issues crying for your attention, it will be a good idea to start your innings with a clarification on what happens to the accumulated credit of education Cesses lying in the CENVAT accounts of the assessees. The assessees are really concerned about this blocked up amount and the unconcerned silence of the Board. Will you ask your  concerned  officers to clarify the position as soon as possible?

Until Tomorrow with more DDT

Have a nice day.

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