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New TDS Regime - A tale of goof-ups; TPL, TRU need to develop grip over taxpayers' pulse for improved compliance!

TIOL - COB(WEB) - 135
MAY 14, 2009

By Shailendra Kumar, Editor

THE new TDS procedures which were notified on March 31, 2009 to come into effect from April 1, 2009 have snowballed into a major but avoidable controversy. Had the Central Board of Direct Taxes (CBDT) notified the new Form 17 before May 7th - the last date for paying TDS without penal interest for the month of April, a lot of facts relating to ill-preparedness of the Board, internal infighting over the alleged infraction of protocol and rules of business within the Board and lack of opportunities to agencies like NSDL, DG (Systems) and CGA for doing meticulous homework would not have come out in the open! This is more so because the hapless taxpayers have never been accorded the status of patrons or clientele by either our politicos or policy makers. The concept of taxpayers' services has indeed been debated at length in our country but has unfortunately not gone into the heads of our policy-makers. And it is prominently evidenced by this 'TDS Syndrome' where reasonably sufficient time should have been given to the tax deductors as well. But since taxpayers and tax deductors do not constitute a collective and organised pressure lobby, they are perhaps viewed as nano-particles on the large map of tax collections.

Anyway, let's begin with a simple and pedestrian question - whose responsibility is the tax collection? And the obvious answer is that of the taxman. Then where and how do the millions of tax deductors figure on the landscape of larger revenue collection strategies? Since it is humanly not possible nor legally feasible for the taxmen to prevent evasion and avoidance of tax, tax deduction at source (TDS) is a globally accepted withholding tax tool to bring an element of certainly in tax collections. This is a legally-designed liability on all those who make payments for about two dozens services notified under the TDS canvas. In other words, it is a 'vicarious responsibility' that has been transferred by the taxman on the shoulder of tax deductors, of course legally. In nutshell, what tax deductors do is a great help to tax gatherers in performing their legal duty of collecting taxes which are due to the exchequer. True, it is a legal obligation on tax deductors but if one bares the clothes of legality covering this practice, it can be construed, in common parlance, as a regular assistance to the tax collecting hands of the Income Tax Department. And if it is an assistance, the CBDT is moral bound to make it easy, convenient and cost-effective for the tax deductors to at least show the gratitude for the 'favour' done.

How does the Government treat the banks which collect taxes on its behalf? For merely accepting the deposits coming from the taxpayers or tax deductors the Government gives rewards to banks in the form of commission. And mind it, these commissions are in billions! Our banks neither persuade nor transport taxpayers to their branches for depositing taxes with them. Rather the taxpayers' services are minimal at all tax collecting banks where a taxpayer has to stand in queue and, there is no sitting place if you are an aged taxpayer. Anyway, the larger question is that when the Government can pay commission to banks for merely keeping the money why can't it come out with a scheme to reward even large tax deductors who are doing the work of the taxmen? If not commission, the CBDT can certainly devise a scheme for honest and meticulous tax deductors to encourage them to help the exchequer. If a reward is thought to be impossible, the minimum the policy-makers can do is to reduce the cost of TDS collections incurred by tax deductors. The basic canons of natural justice demands that if taxmen have passed on their responsibility on millions of tax deductors, they are justice-bound to make their life easy and compliance cost-effective.

What what is unfortunately happening is that the Government is hell bent on enriching the pocket of NSDL at the cost of taxpayers and tax deductors. One after another sci-fi scheme is being conceived and the burden of cost for implementing the same is being loaded on the taxpayers. For instance, even for the new TDS Regime where the TPL (Tax Planning & Legislation) has conceived the concept of Unique Transaction Number which is to be generated in billions by the NSDL and all sorts of TDS returns and compliance statements are to be deposited with the NSDL, the CBDT has not worked out any cost for the same. And in all likelihood, it may be left open to the NSDL to fatten its graph of profits at the cost of taxpayers. Worse, a cursory investigation by TIOL reveals that although all the data whether of PAN or TDS being deposited with the NSDL logically belongs to the Income Tax Department but the CBDT has not incorporated any such clause which may prevent NSDL from claiming ownership right over such data and may even sell them in the market tomorrow!

Let's now go back to the epicentre of the controversy i.e TPL. TPL is the core of legislative work done by the Board. Like TRU in the CBEC, it proposes all the amendments in the Income Tax Act, Wealth Tax Act, rules and procedures in the Finance Bill presented in the form of Union Budget and then notifies the amendments approved by the Parliament. Since it does the most crucial work during the preparation of Union Budget, its senior officials get opportunities to skip the hierarchy of the Board and interact with the Finance Minister and the senior Secretaries in the Ministry. Quite often the Finance Ministers also prefer skipping the ranks and directly discussing changes with the TPL and TRU officials. This is undoubtedly done to save time and help the doers in the TRU and TPL to understand the mind of the Minister and also the Prime Minister who regularly sends inputs to the budget-making brigade. This close interaction is sometimes misinterpreted as 'personal proximity' with the Minister by the budget-making officials who in turn develop a tendency to marginalise their seniors and Board Members on a variety of technical issues. Such a tendency becomes their habit and attitude even after the Budget exercise is over. Although TIOL has seen many such officials in the past exercising self-restraint despite having 'perceived proximity' with the Ministers, but there are many who continue to build on their misconstrued status. And that is how a serious error like the new TDS notifications sans the Board approval and proper homework is committed.

If we take a broader view of the issue, such attitudinal problems where young officers take pride and work with passion and also arrogance in these research units, may be seen as human frailties. But this is where the experience should come into play to sober them down. There is no substitute for experience. A regular training drill or interaction with a hue of different groups of senior officials needs to be organised to mellow down the behavioural or attitudinal problems of youngsters working in TPL and TRU. Since most seniors keep themselves at arm's length from them, their pride in being instrumental in law-making tends to degenerate into arrogance which is disliked by all the senior officials in the field formations as well as Board, the assessees and also the media!

In TIOL's opinion both the Revenue Boards need to devise separate deputation guidelines for officials who are to be put in TPL and TRU. And these guidelines should make it mandatory for the Member (P&V) to identify and prepare a list of officials who are to be inducted in the budget-making units in future. One of the key highlights of such guidelines should be rigorous training of these officials. And a part of training should also include a mandatory deputation with one of the leading corporate houses for at least one year so that they could learn the way large taxpayers and tax deductors manage their fiscal affairs and the kind of compliance problems they face or incur costs to overcome them. Unless they see and become a part of the pain which tax deductors have to go through for carrying out the 'vicarious responsibility' of the taxman, the young policy-makers will always remain cut off from the ground realities like in the instant case.

Let's now go back to the new TDS Regime which has many more shortcomings than the ones already pointed out by us in our 'TIOL Exclusive' last Monday. And some of them are:

++ The proposed Form 17 will not have something like mandatory columns. If that is going to be true, then if PAN is not available in the case of certain deductees how will the UTN be generated? And if all the columns are going to be mandatory, if the PAN of one of two deductees are going to be wrong, the entire challan will be held up and will not be deposited. Having one or two wrong PAN numbers out of thousands may not be an unrealistic proposition. Similarly, for small tax deductors who deal with small-time contractors or professionals, this could be a difficult barrier.

++ Govt DDOs: The problem of non-compliance by DDOs has elaborately been discussed in our Monday report. The additional input which TIOL collected between Monday and Wednesday is that there are about 1000 DDOs in the Income Tax Department. And when our reporters spoke to a couple of them they simply found the new TDS regime as unrealistic and 'outlandish'. Maybe the TPL should have run a pilot project with their own DDOs before writing about the experience to other DDOs in the Central Govt as well as State Govt. Perhaps the Board could have thought of organising special training courses or camps to impart such skills to the DDOs before notifying such a scheme.

++ Given the fact that the Notifications No 31 & 32 prescribe new TDS challan and returns, for other types of tax payments like advance tax, the old challans remain and it would entail all the banks and the NSDL to make substantial change in their online e-payment interfaces - one for the TDS and other for other types of tax payments!

++ Inconsistency between the Act and the Rule: As per Sec 200(3) of the Act, tax deductors are to furnish returns by June 30th, September 30th, December 31st and March 31st. However, the amended Rules have now preponed the same to June 15th. Such legal inconsistency may hold waters in a court of law.

There are many more such lacunae in the new regime which need to be sorted out before it is rolled out again. Ideally, the CBDT needs to be more patient and give some more time to the existing scheme which has done very well since it was put into effect in 2003 and has not let its targets down despite a slowdown in the economy. The current 30% growth rate in TDS collections is a wonderful growth trajectory and the CBDT should not get perturbed by a handful of bogus cases or TDS frauds. Merely because SSI units indulge in large-scale excise duty evasion, no Finance Minister has ever attempted to roll back the exemption given to them. Frauds are a part of all systems. All a civilised society should try to do is to keep improving the existing system. Let's hope TPL and TRU both view our suggestions in positive perspective rather than their criticism!

AR not Afar by SK Rahman

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