Modernise India’s archaic tax laws

Context: Need to modernise India’s archaic tax laws.

Background:

• The Income Tax Act was framed in 1961 and has been amended several times.
• The government constituted the Akhilesh Ranjan Task Force to suggest reforms to the Income Tax Act.
• The report has been submitted to the government but has not yet been made public.

People who gained during the Pandemic?

• India’s super rich: Between January and June 2020, 85 new Indians were added to the list of High Net worth Individuals (with a net worth of more than $50 million).
• Stock dealers: When the Indian GDP was contracting, some stocks surged to phenomenal heights there by benefitting those dealing in stock exchanges.
• The corporate houses, Internet service providers, laptop makers and scientists engaged in medical research also gained.
• The manufacturers of masks and Personal Protective Equipment also gained during the pandemic

What are the problems in taxation?

• Implementation of Equalisation Levy: Through Digitalisation and e-commerce multilateral corporates have found an easy way to make big money. However, the tax administration is struggling with the implementation of the equalisation levy.
• Implementation of Anti profiteering rules under GST: As per the Goods and Services Tax (GST) law, any reduction in the rate of tax on the supply of goods or services has to be passed on to the consumer by way of commensurate reduction in prices. Companies are getting benefited from GST rate reduction without passing on the benefits to the end consumers.
• Tax evasion: Tax avoidance by global web companies has become acute because of Digitalisation.
• Tax dispute settlement: The International Court of Arbitration ruled that the Indian government’s move to seek taxes from Vodafone using retrospective legislation was against the fairness principle.

What can be done?

• Digital taxation has to be amended in accordance with the UN Model Convention. There is need for India to act in sync with the OECD.
• The Anti-Profiteering Rules have to be implemented vigorously wherever there is reduction in the tax rate on any commodity or service
• Need to find a suitable mechanism to negotiate settlement through mediation or conciliation or, if necessary, arbitration in connection with tax disputes between the tax-paying companies and the Central Board of Direct Taxes.

Our archaic laws should be modernised and made compatible with international tax laws. The suggestions made by Akhilesh Ranjan Task Force needs to be implemented after wide consultation.