India has taken various initiatives to improve tax administration in recent decades; the latest one being the GST reform.
The developments bring to the fore the ideas of taxpayer's rights and taxpayer's obligations.
How has tax administration been?
The initiatives and reforms in the past, despite its own benefits, have been causes for many tax disputes as well, due to the shortfalls in them.
DTAAs - Double Taxation Avoidance Agreements were signed with different countries to attract investments.
However, the exploitation of legal loopholes in these DTAAs led to multiple disputes relating to capital gains.
Transfer pricing - the mechanism provided for rules and methods for pricing transactions between enterprises under common ownership or control.
Despite introducing a dedicated transfer pricing segment in the Income Tax Act, the determination of price of such international transactions in open market conditions led to chaos.
India thus ended up being party to more than half of the global transfer pricing disputes by 2014.
Income Tax Act - retrospective amendments were made to the Income Tax Act after the government lost to Vodafone on a capital gains dispute case.
The corrective measures were aimed at augmenting the government's revenue generation capabilities and also countering abusive tax avoidance strategies by taxpayers.
GAAR - the revocation of ‘presumption of innocence’ of the taxpayers under General Anti-Avoidance Rules is another contentious issue.
Under this, the burden falls on the business entities to prove that their tax mitigation techniques do not qualify as ‘impermissible avoidance arrangements’.
This goes against the fundamental principle of ‘innocent unless proven guilty’.
GST - the latest GTS reform has apparently achieved a balanced model of fiscal federalism through a dual GST system.
However, there seems to be many procedural complications with GST Network, other technical glitches, etc.
Tax collections, input tax credit claims and tax refunds are bound to face the impact of these technical and procedural roadblocks.
Ex: cash crunch woes due to the delayed refunds - a prominent grievance of the trading community after GST implementation in Malaysia.
What lies before the government?
The GST reform is for sure a constructive approach by the government if not for its minor shortfalls.
As, GST seems to have recognised and materialised the major recommendations of the Tax Administration Reform Committee formed in 2014.
The provisions include -
improvement in taxpayers’ service,
enhanced use of information and communication technology,
exchange of information with other agencies,
expansion of tax base, compliance management, etc.
These measures can result in a higher degree of trust between the tax collector and taxpayer.
The recent introduction of a citizen’s charter in both direct and indirect tax statutes can help in enforcing the existing rights.
India is thus witnessing a shift from enforcement-based strategies to service-based strategies in tax administration.
But only a proper understanding and implementation of these can bring in a fair balance between the rights and obligations of taxpayers.
