Taxpayer rights and obligations:

Taxpayer rights and obligations:

Context

The tax structure of the country is making a paradigm shift both in terms of direct and indirect tax, but it still requires more clarity and fairness in the assessment and collection of the taxes,  so as to bring in more trust among the taxpayers.

What is missing?

• Taxpayers are looking for certainty in the tax structure of the country which is witnessing a transition.
• Though the purpose is to make the tax collection system more efficient and productive, at the same time the tax levied and the way it is collected should deem fit to the suitability of the tax payers.
• This is where an internationally recognised concept such as taxpayer rights holds well even in the Indian context.

How is Government lending its support ?

• The Central government has development strategies in the form of campaigns like ‘Make in India’ and ‘Startup India’.
• The recent introduction of the Goods and Services Tax (GST), which is the most significant overhaul of the taxation system in India ever, also aims to achieve a unified market across the nation for the first time.

What is the need for identifying the concept of taxpayer rights?

• By introducing this new tax regime of GST, the government has made it clear that it wants to transform India into a manufacturing, investment and research and development hub and consequentially, there would also be an increase in revenue generation
• In the light of such economic aspirations, a fair balance between taxpayer rights and obligations will only ensure a higher degree of trust between the tax collector and taxpayer, thus leading to a higher tax yield

Where is the loophole?

• India has seen key tax disputes ever since a similar growth-oriented road map was adopted by the government in the early 1990s
• For instance, in order to attract investments, the government signed Double Taxation Avoidance Agreements (DTAAs) with states like Singapore and Cyprus on similar treaty terms as the India-Mauritius DTAA signed in 1983
• In the long run, they proved to be detrimental for India
• Multiple disputes relating to capital gains surfaced due to exploitation of legal loopholes in these DTAAs.
• Another example is of ‘transfer pricing’ mechanism (the rules and methods for pricing transactions between enterprises under common ownership or control), where there was little clarity with respect to international transactions between associated enterprises before April 2001.
• Even after the introduction of a dedicated transfer pricing segment in the Income Tax Act, the chaos could not be curtailed as the determination of arm’s length price (the price of such international transactions in open market conditions) would almost always be a contentious exercise.
• India ended up being party to more than half of the global transfer pricing disputes by 2014.

What corrective measures did government take to handle transfer pricing disputes?

• After it lost to Vodafone over a capital gains dispute, the government came up with aggressive measures not only to to augment its revenue generation capabilities but also to counter any such abusive avoidance strategies by taxpayers henceforth
• Retrospective amendments were made to the Income Tax Act to supersede the adverse judgment of the Supreme Court in 2012, which were not limited in effect to only Vodafone but several such disputes relating to taxation of capital gains and deemed income of numerous MNCs having their interest or investments in India, directly or indirectly.
• A step further was the implementation of General Anti-Avoidance Rules (GAAR) in India

How does taxpayer rights remain unattended?

• The GAAR provisions have been made effective in India from April 1, 2017, and they can be considered as the latest chapter on the mismatch between taxpayer rights and obligations.
• Some major concerns with respect to taxpayer rights are left grossly unaddressed.
• A major example is the revocation of ‘presumption of innocence’ of the taxpayers.
• It is now a burden on these business entities, right from the initiation period to prove that their tax mitigation techniques do not qualify as ‘impermissible avoidance arrangements’.
• This goes against the fundamental principle of ‘innocent unless proven guilty’.
• As for the GST, while the government has apparently achieved a balanced model of fiscal federalism through a dual GST system, the path ahead is simple neither for the taxpayer nor the tax collector.
• For example, the GST Network will process billions of invoices every month, with its concomitant economic and fiscal impacts of technical glitches and other such situations.
• These snags will impact traders with genuine transactions, as the processing of their tax collections, input tax credit claims and tax refunds might get affected.

What are the positive aspects?

• What is positive to note though is the constructive approach of the government, aiming to improve tax administration and as a result ensuring better tax compliance.
• The recommendations of the Tax Administration Reform Committee, submitted to the Finance Ministry in 2014, tried to reintroduce a fair balance between the rights and obligations of taxpayers
• Several of these recommendations, such as improvement in taxpayers’ service, enhanced use of information and communication technology, exchange of information with other agencies, expansion of tax base, compliance management, etc. have either been accepted or implemented to ensure a better relation between the taxpayer and the tax collector.