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India has to make its own tax law
October, 15th 2016

When the Narendra Modi government appointed Justice RV Easwar as chairman of the 10-member committee to simplify direct tax law provisions in October 2015 it could not have zeroed in on a more competent hand. For Easwar brings with him rich and varied experience in tax matters. Beginning his innings in July 1975 at 23, he was enrolled as a lawyer in the Madras High Court. His CA degree was an additional qualification. Joining as Judicial Member, Income Tax Appellate Tribunal (ITAT) in 1991, Easwar worked in Kolkata, Bombay, Delhi, Bangalore and Ahmedabad branches. He was appointed vice-president of ITAT in 2005, senior vice-president in 2009 and president in 2010. The following year, Easwar was elevated as Judge of Delhi High Court. Retiring in April 2014, Easwar was designated as Senior Advocate by the Supreme Court in April 2015.
He spoke to R C RAJAMANI on the working of the committee he is heading and related matters. Excerpts:

Q: Last year when your committee began its task, you said you would first look into the problems faced by the common man. How far have you been able to look at these issues?
A: Quite a bit. In our first report we made many suggestions that were of practical value to the common man, such as tax deduction at source, taxing of surplus on small investment in shares, etc. Almost 70 per cent of the recommendations were accepted - either by statutory amendments or through administrative circulars. Recommendations regarding presumptive taxation of the income of professionals were accepted with some modifications. Suggestions to increase the threshold limits for tax deduction at source, to reduce the rates of TDS were accepted. I am happy to say that it did motivate us to do better in the second and final report. Considering that the committee had only three months to give the first report, I must say the work done was significant for the common man.
The committee decided by consensus that before going to the rather complicated provisions relating to business taxation, including international taxation and transfer-pricing issues, the well-justified grievances of the common man - the marginal taxpayer, the pensioner and the like - should be addressed to the extent possible within the available time. The committee felt these sections do not have a unified voice or platform from which they can voice their concerns.

Q: What has been the reaction and response of the government as well as the direct stakeholders - the taxpayers?
A: During the first phase, we hardly had time to meet the stakeholders, and had to therefore confine ourselves to internal discussions. The members of the committee are experienced and well-respected professionals, and sincere, open-minded and objective officers of the Indian Revenue Service who know the common man’s tax hassles. During the second phase, which is yet to be completed because of the vastness of the task, the committee has had meetings with stakeholders, including IRS officers, in three important centres so far - Bengaluru, Ahmedabad and Mumbai. We have plans to visit some other cities. Besides, we have also been receiving written representations from trade and industry and even individual tax-payers. All these will be looked into and treated as valuable inputs for the committee. The suggestions which have so far come from the stakeholders are very significant, very relevant and thought-provoking. They merit serious consideration. I must tell you something important. During the committee’s interface in the three places, it was our experience that the officers of the IRS were unbiased, introspective and sympathetic. They made very genuine and practical suggestions to the committee. I wish to highlight this because there is normally a different perception among the public about them. As regards the response of the government, it is unquestionable that the report of any committee is only recommendatory and it is the prerogative of the government to accept or reject the recommendations. But going by the government’s response to the first report, the committee feels reassured that all the recommendations will be considered objectively and on merits.

Q: Would you say the Income Tax Act in India is much more complex than other democracies such as the USA and UK?
A: I am not very familiar with the provisions of the UK or the US tax Act. All I know is that our Act is certainly complicated, which is why the general mandate to the committee is to simplify it. Having said that, I must also say that if the business models all over the globe, including India, are getting more complex, you cannot avoid some complexity in the tax laws to deal with them. The degree of complexity of the law is directly proportional to the complexity of the business models. I am personally of the view that India has to make its own tax law, without being unduly influenced by the UK or US or any other country’s tax law, except to the extent necessary in the interest of comity of nations, commitment under the tax treaties, and the interest of its international business, adoption of the best tax practices, etc.

Q: You being a lawyer and CA with long experience in the income tax appellate tribunal was a major factor in your choice. There were nine other members in the committee with different specialisations. How did you find working with the diverse brains?

A: It was an absolutely rewarding experience. We have two senior IRS officers who are widely and diversely experienced and have a very open mind, and they are a repository of statistics and information that is relevant and can be shared with the committee. One of them has been a member of almost all the committees to look into the tax law right from the Chelliah Committee. We have an experienced former law ministry official who has drafted several legislation. Out of the other seven, two are respected investment banking experts who have rich experience in FDIs, working of FIIs, banks and so on. The other five are tax professionals of repute with rich practical experience in the working of the law. One of them is also an academician in a leading commerce college in Delhi. The committee thus probably has not less than 300 years of experience. The deliberations of the committee and the interaction with the stakeholders have perhaps taught me more than what my own experience in the Bar and the Bench has done. The brilliant men in the committee are all humble and willing to listen to rival points of view, accommodative and do not like to thrust their views on others. That is the best part.

Q: The committee is to submit its final report this month. What are the areas it examined since its first report?
A: The first report covered only a small field and we did commit ourselves in the report that the more complex issues will be dealt with in the second report.The second report will mainly cover business taxation, international taxation issues, transfer pricing issues, issues relating to the working of the Dispute Resolution Panel, Income Computation and Disclosure Standards, working of appellate and other dispute resolution authorities such as the Income Tax Appellate Tribunal, Authority for Advance Ruling, Income Tax Settlement Commission, etc. But with one caveat: that all the suggestions will be looked into strictly within the mandate given to the committee and not beyond that.

Q: Some experts say income tax can be dispensed with by resort to expenditure tax, etc. Is it feasible and advisable in India?
A: Your question cannot be answered in one word. It has so many ramifications. It is a policy issue. One can have different approaches - the taxation of income, the taxation of expenditure, the taxation of cash flows, and several other alternatives. There was at some point of time an expenditure tax in India. The feasibility and advisability of an expenditure tax in India is a matter for the policy-framers to consider. I have not applied my mind to such a complicated issue and am therefore unable to answer it.

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