Settling tax disputes good, best to nip them in the bud : 06-11-2020

That more than 40,000 private sector companies have come forward to settle tax claims worth some Rs 14,000 crore, under the Vivad se Vishwas is encouraging. In addition, PSUs are believed to be looking to resolve tax claims of around Rs 1 lakh crore. Admittedly, this is a small portion of the Rs 9.32 lakh crore of tax that is disputed, but one hopes the government will have something to show for its efforts by December-end when the scheme comes to a close. Meanwhile, the department needs to get its act together to ensure such a pile-up doesn’t recur. The department needs to be far more restrained while disputing tax payments and, in fact, the CBDT needs to be a lot more proactive while examining the orders of the commissioners. The taxman’s track record in winning cases has been far from impressive, which suggests the grounds for initiating disputes aren’t strong enough. The CBDT needs to ensure the claims are not exaggerated and penalise officials if it turns out they are. In their efforts to improve collections, at times by making excessive claims, taxmen are actually allowing collections to stall. Indeed, in many of the recent years, the amounts disputed have been growing at a faster rate than direct tax collections themselves. In FY18, for instance, the volume of direct taxes disputes jumped 28% to Rs 8.02 lakh whereas the collections in that year were up 14.7%; in FY16, the claims jumped 16% whereas direct tax revenues in that year grew at sub-8%.

The taxpapyers’ charter unveiled recently can improve the system only marginally. Faceless assessments and appeals, with an option to call for personal hearings where matters are complicated, are all very well, as are separate teams for appeals to reduce chances of bias and opportunities for corruption. However, separate officers and teams assessing and reviewing a case doesn’t necessarily mean the decisions are correct. It is possible officers will not seriously question the decision taken by the others. Ideally, they need to be incentivised to review the assessments critically and not to simply go along with the decisions of the officer or team that first assessed the case. In the absence of an attractive incentive—bonuses or promotions—officers would, by and large, refrain from upsetting the applecart; they would reason that all the money, in any case, goes to the exchequer. Officials need to be incentivised for making sure cases don’t reach the courts or are not arbitrated. Today, taxmen are able to harass taxpayers and keep a case alive simply by sending a letter to the assessee from time to time.

The Sabka Vishwas Scheme (SVS)—also aimed at resolving disputes and providing protection for legacy central excise and service tax—is understood to have fetched the government close to Rs 40,000 crore from an estimated 1.9 lakh applicants. At the time, the amount locked up in litigation at various quasi-judicial, appellate and judicial forums was close to Rs 3.6 lakh crore across 1.83 lakh cases. Given that the relief provided by the scheme was about 70% of the duty if the amount involved was Rs 50 lakh or less, and 50% if the amount was more than Rs 50 lakh, the relative low collection suggests assessees believe they have a strong case.

Source : Financial Express