Report on CBDT and Income tax

Why in news?

Comptroller and Auditor General of India (CAG) has tabled its report on Central Board of Direct Taxes and the income tax department.

What are the findings of the report?

• CAG has find out that there has been persistent and pervasive irregularities in respect of corporation tax and income tax assessment cases over the years.
• The latest audit report takes note of 457 high-value cases of such irregularities.
• They include some the best-known entities in the public and the private sectors.
• The CAG has also detailed various ways in which tax officials have bungled in collecting these taxes.

What are the irregular ways used by tax officials?

• IT department had raised exaggerated demands to the tax payers to achieve its revenue collection target.
• This is not only unwarranted but also a financial burden.
• This is because the taxpayers has to be paid refunds with interest by the department for the additional amount collected, which could have been avoided.
• One of the ways that these exaggerated demands are made is by not giving full credit for the taxes already paid.
• IT department did not adopt a uniform approach in dealing with cases of fictitious donations or fake purchases.
• The assessment officers did not take cognisance of reports filed by the investigation wing.
• They also failed to initiate necessary follow-up action regarding fictitious donations that has resulted in loss of revenue.

What are the implications of the report?

• Corporation tax and income tax together constitute 33% of the Union government’s revenues.
• Wide-scale discrepancies in such taxes could upset the overall budgetary calculations and also affect trust among honest taxpayers.
• The CAG has stated that “recurrence of such irregularities, despite being pointed out repeatedly” in earlier audit reports points to structural weaknesses on the part of the tax administration.
• Lack of transparency in taxation is also a massive disincentive for business in the formal sector.

What measures needs to be taken?

• The tax department must ensure that taxpayers do not need to submit multiple returns and have quicker options of redress should a dispute arise.
• This is important as a huge amount of money is locked in litigation due to complicated tax rules and varying interpretations.
• Costly compliance and loopholes keep majority outside the income tax net, and this can be sorted out by implementing electronic assessments.

Source: Business Standard