Viewpoint: Income Tax Reforms

16 AUG,2020 | MEDC


The government is overhauling the income tax (IT) department to implement the faceless assessment scheme launched by the Prime Minister. This will eliminate the physical interface between the assessed and the tax officers, both of who could be located anywhere in the country. Faceless assessment minimizes issues arising from territorial jurisdictions and substitutes individual judgement with chances of a more random and less subjective scrutiny. It is likely to introduce transparency and objectivity into the entire taxation process. However, clarity is still awaited over what happens to the incriminating evidence collected painstakingly against some taxpayers over the past few years. No doubt, it is a sincere attempt to rationalize the system, but it should not occur at the cost of genuine efforts put in by the IT officers over the past few years. The Taxpayers’ Charter, unveiled by the Prime Minister is intended to build trust between the IT department and the taxpayers, but the government first needs to reform the administrative setup appropriately to achieve the intended results. In all fairness, some officials are also charged with unreasonable collection targets, especially towards the end of the year, and that is the source of much of the aggressiveness in their demands. If a section of the taxpayers believe that they have legitimate grievances, so do some of the officers, and so, both sides need to be given a patient hearing.A key demand of many taxpayers missing in the Charter is that retrospective taxation should be rescinded. Some foreign companies (notably in the telecom sector) had recently crossed swords with the tax authorities in this regard, resulting in a lot of time-and-money consuming litigation. The mistakes of the past need to be avoided. This is not to suggest that the ban on retrospective taxation should be of a blanket nature, but rather that it should accommodate a range of legitimate perspectives which could arise in today’s borderless and financially complex world. Likewise, expanding faceless assessment to the entire country is likely to reduce litigation, but certain cases requiring deeper understanding and personal interactions with taxpayers may be inadequately served by this approach. The challenge lies in educating not just the officers, but also the taxpayers about their rights and responsibilities under the new arrangement. The government has attempted some novel ways to encourage tax compliance and broaden the tax base, and all of us need to understand and appreciate them.

*Photo Credit: Google


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