To bring in coherence in tax policy, the government on Tuesday announced the constitution of a common tax policy unit that will take a holistic view of direct and indirect tax policies besides determining the negative side-effects of tax decisions.

The announcement is the first step in reforming tax administration as suggested by the tax administration reforms commission (TARC) headed by Parthasarathi Shome.

In its statement, the finance ministry announced the constitution of a tax policy council headed by the finance minister as well as a tax policy research unit.

While the tax council, advisory in nature, will suggest broad policy measures for taxation, the tax policy research unit will study various tax and fiscal policies, liaise with state commercial tax departments and assist the tax policy council in decision-making. It will also elaborate the legislative intent behind specific proposals, their impact on tax collections, as well as the likely economic impact of the proposals.

Besides the finance minister, members of the tax policy council include the minister of state for finance, commerce and industry ministers, chief economic advisor as well as secretary-level officers from the ministries of finance and commerce and a NITI Aayog representative.

The tax policy research unit will have members from both the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) as well as economists, statisticians, operational researchers and legal experts, the statement said.

The unit will be headed by an officer of the level of chief commissioner, alternately from the CBDT and CBEC, for a fixed tenure, who will directly report to the revenue secretary.

TARC had stressed the need to bring consistency, multidisciplinary inputs and coherence in policymaking and suggested a common tax policy unit to cater to the needs of both direct and indirect taxes. TARC was constituted by the previous Congress-led United Progressive Alliance government and submitted its first report in 2014.

Sunil Shah, partner, Deloitte Haskins and Sells LLP, said in a note, “These steps will enable the government to take an integrated view of direct and indirect taxes and obtain inputs from a broad spectrum of professionals. This will help in the formulation of balanced and forward-looking tax policies.”