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DTC leveraging Tax Technology - Idea whose Time has come!

TIOL - COB( WEB) - 673
AUGUST 22, 2019

By Shailendra Kumar, Founder Editor

THE Task Force on Direct Tax Code (DTC) led by the CBDT Member, Mr Akhilesh Ranjan, finally managed to submit the Report along with a Draft Income Tax Bill to the Union Finance Minister on Monday. Though the Government is yet to make the Report public, even a cursory peep into the history may reveal many similarities between the GST and the DTC!! Like the GST, DTC has also taken close to 10 years and it may take another two years before it comes into force. Like the GST Bill which was referred to the Standing Committee of Finance, the DTC Bill 2010 was also referred to the House Panel which had given elaborate recommendations. A good number of recommendations were accepted and many dozens were overlooked on the ground of serious revenue implications. Like the GST, the DTC is also going to be a largely tax technology-driven new legislation where the Task Force has laid decent emphasis on use of modern IT tools like Artificial Intelligence for efficient tax administration and better compliance. Very rightly, the Panel has relied more on collaborative efforts to integrate data from banks, GSTN and financial institutions which would automatically widen the tax net, ensure better tax compliance and tax buoyancy.

The CBDT is already fully geared to auto-populate data under various heads like capital gains from Mutual Funds, salaried income, interest income from FDs etc in the coming ITRs. In addition, the Income Tax field formations are bracing up for faceless assessment and e-appeal procedures. The use of tax technology has indeed moved to the centre stage with the Department going for jurisdiction-less assessment. In fact, the Task Force has boldly applied its mind to the declining quality of assessment in the Department. While doing so, it was acutely aware of the fact that assessment is the fulcrum around which most of Departmental activities revolve. That was the nudge for it to suggest the concept of assessment unit in place of assessing officer. The Task Force was aware of the bucket of ills which afflict the fairness of assessment or re-assessment orders and how they diminish the success rates of the Revenue appeals before judicial forums. Secondly, it also knew the misuse and abuse of discretions vested in the tax administration and that is why it has suggested the use of AI and a collegium of CITs for taking a view on any addition made.

I do welcome the suggestions of the Task Force about the gradual infusion of tax technology in the regular working of the tax administration and for improving tax compliance. But, it is not without a word of caution! The CBDT needs to take a few lessons from the sister Board which goofed up on the tax technology front by hurriedly implementing GST. In principle, the use of tax technology and complex compliance framework are inversely related. If greater role is assigned to tax technology, simpler should be the compliance framework. The GST caravan initially got serious setback and it is yet to recover fully only because a central role was assigned to the GSTN which promises no physical interface and the ease of filing returns and payment of taxes but the policy makers framed highly complicated procedural rules for the same. As a result, even today, the GST assessees are not able to file their GSTR-9 and 9C and a large segment of professionals are quite vocal about their demand for further extension. And it seems be on the cards!

The CBDT should not fall in similar trap by rushing into a technology-based tax administration and tax compliance. A simple example which one taxpayer recently shared with me is that when he decided to wind up the partnership firm, he was under obligation to close the bank account but when the refund was sanctioned, the cheque was by default issued in the name of the firm. When the issue was brought to the notice of the Department, there was no mechanism to cancel and issue a fresh cheque in the name of one of the partners. The partners have spent dozens of productive man hours with the senior officers who are yet to find a solution. So, the moral of the story is that increasing use of technology is fine but it should be coupled with certain discretions vested in designated senior officers in each city who can take a call on such grievances of taxpayers rather than the officials putting the blame on technology and lack of procedure!

Let me now move to the tax rates and tax slabs which have naturally got the maximum media footage. It is true that the Task Force has given detailed projections of revenue for six financial years even if the tax rates are reduced and tax slabs for individual taxpayers are restructured. But all such tinkering with the tax rates and tax slabs largely hinge on political aspirations of the government rather than economics, efficiency and equity. If the Government is willing to contain the number of centrally-sponsored welfare and development schemes, it's revenue needs can be contained and thus some fundamental changes can be made in the Income Tax Act. Given the slowdown in the economy and the impossibility to realise the current year budget estimates, I do not see much political will to tinker with the tax rates on immediate basis.

In fact, if one recalls the DTC Bill 2010, similar tinkering with tax slabs and tax rates was recommended but leave aside the Government, even the Standing Committee had observed that such reduction in tax rates and enhancement of exemption threshold was not possible as it would result in revenue loss of Rs 24000 Crore. Similarly, I am also not too sanguine about immediate possibility of any restructuring of the entire basket of surcharges and Cesses. Since Union of India needs lots of revenue in its kitty, surcharges and Cesses are proven reliable instruments to serve the master. However, I do welcome the recommendation of the Task Force in this regard.

The Task Force has rightly suggested that the DDT should be done away with and the same may be taxed in the hands of taxpayers at the tax rate applicable to the tax slab of the taxpayer. Similarly, the Task Force has called for rationalisation of the Capital gains and MAT regimes. I am certain when the Report is made public, one would find some transitional provisions for carrying forward losses and MAT Credit. Logically, the Report has suggested a hassle-free tax regime for startups and less complicated tax regime for businesses with limited exemptions. Thankfully, it has also suggested a dedicated vertical for litigation management. The most radical recommendation is the introduction of MEDIATION in tax litigation which is a new trend in the emerging economies. Developed countries have also reaped the benefits of such alternative dispute resolution mechanism but India never had it and that is one of the reasons for the rising graph of tax arrears. I am sure mediation would go a long way in reducing tax litigation and also enriching the revenue kitty.

The Report is believed to have made significant recommendations on taxation of foreign companies and their branches in India. Much lower tax rate has been proposed for branch profit taxation. I am sure the Task Force must have given due consideration to the new trend of tax multilateralsim a la G20-sponsored BEPS Action Plan and other similar activities led by the OECD. I sincerely hope that the Modi Government would welcome the long term benefits envisaged in the DTC and give its approval for implementation of the same in the quickest possible time!


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