The standing committee on finance has asked the government to ensure there are adequate safeguards to protect tax payers from some of the stringent provisions introduced in the finance Bill.
It has also pulled up the income tax department for its aggressive search and seizure operations, high-pitched and unreasonable tax demands reflected in a high rate of rejection of cases or appeals filed by the tax department at appellate tribunals or courts and its inability to complete the probe into the names reported by HSBC (Hongkong and Shanghai Banking Corp. Ltd) on the unaccounted/black money stashed abroad.

The standing committee, headed by Bharatiya Janata Party leader Yashwant Sinha, in its report on the demand for grants (2013-14), said the industry has expressed reservations regarding these provisions and pointed out that it goes against the intent of bringing in a non-adversarial tax regime. It asked the government to provide adequate safeguards such as providing the power of arrest only to chief commissioners in the tax department. Commissioners now have such powers.

In this year’s budget, finance minister P. Chidambaram had made duty evasion beyond a certain threshold a non-bailable offence and introduced arrest provisions on suspected withholding of service tax.

“Apprehensions have been expressed in this regard that these stringent provisions may be misused in a manner which would militate against the spirit of ushering in a non-adversarial tax regime. In order to ensure that this provision does not result in harassment of tax payers/assessees, the Committee suggest that each proposal of such arrest etc. should be scrupulously looked into prior to such arrest at the level of chief commissioner,” the report said.
The recommendation, if accepted, will add objectivity and introduce another level of clearance, said Bipin Sapra, tax partner at audit and consulting firm, Ernst and Young.

“The chief commissioner, unlike the commissioner, is more detached from field operations and does not have the pressure of meeting revenue targets. The chief commissioner, also, already has the power of prosecution,” he said.
The committee advocated widening the ambit of tax deducted at source to more sectors to enhance collections and to bring more sectors into the tax net. It also pushed for widening the tax base.

Taking note of the increasing tax arrears, the committee urged a time-bound action plan to clear the backlog and realize revenue dues. While direct tax arrears rose 45% to Rs.4.82 trillion, indirect tax arrears more than tripled to Rs.1.03 trillion.

The committee asked the finance ministry to expeditiously complete the probe into the names revealed by HSBC on unaccounted money stashed abroad. The ministry has also been asked to submit the report to the panel within one month.
The committee also opposed the current practice of capitalising public sector banks from the budget holding that it may make them inefficient. It said state-run banks should be pushed to generate funds internally for their recapitalization instead of depending on budgetary support alone.

It also urged the finance ministry to expedite the process of setting up holding companies for state-run banks at the earliest.

“The ministry should also ensure that the capital infused into PSBs (public sector banks) so far is used only for the purpose of credit growth and not for restructuring/writing-off NPAs (non-performing assets),” it added.
Criticizing the disinvestment policy of the government, the committee said when government sells an asset, the proceeds should be used only for fresh asset creation instead of revenue expenditure.