Why CBDT asking India Inc to estimate future income is a bad idea
September, 23rd 2017
The Central Board of Direct Taxes (CBDT) has been trying to simplify its procedures, like e-mail communications with assesses instead of direct meetings, but some of its proposals make little sense. After making the issue of PAN an entirely online process, it decided it wanted to verify the physical documents, for instance—the move was finally dropped, though. CBDT is now proposing that companies give it advance estimates of their taxes for the year, and if this is going to be lower than the tax paid in the previous year, to give reasons for this. Ostensibly, this is to be voluntary, but this opens up a new avenue for potential harassment. If a company, for instance, reports a lower estimate for the year—the estimate is to be given by November 15 of that year—what is to stop the taxman from asking it to justify the reasons for this projection, and get into a lengthy correspondence on this? And if the company gives an estimate for the full year that turns out to be higher than the tax that is actually paid in that year, by the same token, the taxman can turn around and examine whether it reported its income correctly.
The reason for this move, it is not hard to fathom, is because corporate tax collections are not doing as well as expected—news reports suggest the latest advance tax collections are up just 2% over the same period last year. That is why, the government press release on the new move says “a reliable and advance estimate of tax revenues for the year would also provide much needed perspective for planning and prioritizing the Government expenditure”. The point, however, is that it is not the assessee’s job to make assessments for the government—more so since there is no guarantee this is not going to lead to more harassment. And, in any case, even right now, companies make an assessment of their tax liability for the year while paying advance taxes. And they pay an interest on this if they get it wrong. So, if a company ends the year with a tax burden of Rs 100 crore, but pays just Rs 10 crore by June 15—as per the rules, the firm has to pay 15% of the tax by this date—it has to pay an interest on `5 crore. So, a company is doing an estimate of its tax liabilities anyway. But asking for this to be formalised and submittted months in advance is a bad idea. Just drop it.