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Tax laws still adversarial; reforms must in tax administration
January, 31st 2015

While lauding a courageous decision of the government not to press for further litigation in the Vodafone case, the ASSOCHAM has brought to the notice of the Prime Minister Mr Narendra Modi and Finance Minister Mr Arun Jaitley several loop holes in the tax laws which make them quite adversarial to the tax-payers and investors quite contrary to the often-repeated commitments to make tax administration non-adversarial and consistent.

The ASSOCHAM Pre-Budget memorandum for 2015-16 was jointly released by the Chairman of tax council Mr. Ved Jain and Secretary General ASSOCHAM Mr. D S Rawat.

Mr. Jain said that these loopholes relate to, among others, scrutiny of assessments in physical mode asking the assesses to be physically present, arbitrary interpretations and rules on TDS (tax deducted at source), delays in income tax refunds and lack of a Master Circular clarifying the contentious issues.

Many of the provisions in substantive as well in procedural Direct Tax Laws are not equitable and fair. Many of the provisions are unfair and heavily biased in favour of the tax administrators with no accountability. Compliance of tax laws even by the well-intentioned and motivated tax payers have been made more and more difficult and for technical defaults which are sometimes beyond the control of the tax payers.The entire responsibility and the burden has been shifted from the tax administrators to tax payers under the pretext of tax evasion measures, the ASSOCHAM Secretary General Mr D S Rawat said in his letter to the Prime Minister.

Giving a nightmarish experience to the tax payers, at present scrutiny assessments are being done in physical mode despite the fact that the selection of the scrutiny case is random and computer based. It is suggested that the tax department should use the e-technology during assessment proceedings. The officer can issue a notice electronically specifying the issues and asking the tax payer to submit reply with evidences.

Under the provisions of Chapter XVIIB tax is required to be deducted at source on various types of payments. The scope of this chapter is being expanded from year to year. There are various nature of payments about which the normal understanding all along has been that they are not subject to TDS. However, all of a sudden some of the Assessing Officers take a different stand. This is hardly a consistent policy-driven administration, as is promised by the Prime Minister. One such issue which has recently come up relates to the guarantee fee being charged by the banks, said Mr. Jain.

The ASSOCHAM has suggested that amendments to the direct laws other than the tax rates should be delinked from the Budget exercise, since the Budget is a confidential exercise. In the process, certain crucial amendments to tax laws are passed along with the Budget without any public debate in the name of confidentiality.

The ASSOCHAM said delays in Income Tax refund, giving effect to appellate order leads to drain of liquidity resulting in huge borrowing costs and should be processed within reasonable time frame. The law does not have a provision specifying time limit for issuance of the refunds. While there might not be any official reasons for the delay, Assessing Officer is constrained by revenue collection targets and the whole process is less transparent and discretionary.

To bring about transparency in the public system and end corruption from its root cause, the chamber has also suggested that the political parties should be brought under the purview of income tax at the rate of 30% in respect of anonymous donations received by them and should also be subjected to penalty for not filing return well in time.

In its pre-budget memorandum the chamber has said, Surprisingly there is no penalty prescribed for not filing the return of income by a political party in time. Thus there is a need to amend provision in the Income Tax Act to provide penalty in case a political party fails to file the return of income in time.

As per the facts in public domain, more than 75% of the donation received by the political parties are falling in the category of voluntary contribution not in excess of Rs.20,000/- with the result that there is no trail of the name and address of the person who has made such contribution. The normal perception is that these contributions have come out of the money which has not been subjected to tax, highlighted ASSOCHAM.

Accordingly there is a need to introduce a provision similar to the provision of Section 115BBC that each political party shall be required to pay tax at the rate of 30% in respect of the anonymous donation received by it, added ASSOCHAM.

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