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What is Transparent Taxation and the Taxpayers' Charter? How Does It Aim To Help "Honest Taxpayers"?

Editor, TRANSFIN.
Aug 15, 2020 11:42 AM 4 min read
Editorial

In an attempt to increase tax compliance, avoid harassment of taxpayers and reduce Government interference, Prime Minister Narendra Modi unveiled the “Transparent Taxation - Honouring the Honest” platform yesterday.

He said the new policy was being introduced to make the tax system “seamless, painless and faceless”, to avoid harassment by tax authorities and encourage more citizens to pay their taxes.

The platform includes (1) faceless assessments, (2) faceless appeals and (3) a Taxpayer Charter.

While the faceless appeals provision will be applicable from September 25th, the other two went into effect from Thursday.

What is the Faceless Assessments Scheme?

Such a provision was talked about by Finance Minister Nirmala Sitharaman during her Budget Speech this year. This aims to rid any human interface between a taxpayer and the Income Tax Department.

For this, taxpayers would be selected using “data analytics and Artificial Intelligence (AI)” (like everything else these days!) and randomly allotted to tax officers - who are no longer required to be in the same city or jurisdiction - and the filing is processed and reviewed without the taxpayer being required to visit an Income Tax Office.  

To ensure randomness, the draft assessment order will be done in one city, the review in a second city and the finalisation in a third city. And all of these assessments would be carried out by different teams. 

Furthermore, the unit that undertakes assessment of tax returns would no longer conduct surveys, which will now be handled by the investigating and TDS wing of the Department.

Faceless e-assessment had already been rolled out last year in a few big cities. Now, this facility has been extended to all taxpayers in the country.

But there are some exceptions - like serious frauds, major tax evasion, sensitive and search matters, international taxation and Black Money Act & Benami Property.

 

What is the Faceless Appeals Scheme?

If a taxpayer wishes to appeal the assessment decision, he or she would be assigned an appellate officer randomly allocated from any part of the country. Again, the process will be similar to faceless assessment - the identity of the taxpayer will be shielded, the appeal will be analysed by a random team and exceptions apply.

This scheme will come into effect on September 25th.

 

What is the Taxpayers’ Charter?

The “Taxpayers’ Charter” is a 14-point document listing the duties and commitments of tax authorities and the rights of assessees. They include the following points:

  1. To provide fair, courteous and reasonable treatment
  2. Treat taxpayer as honest
  3. To provide mechanism for appeal and review
  4. To provide complete and accurate information
  5. To provide timely decisions
  6. To collect the correct amount of tax
  7. To respect the privacy of taxpayers
  8. To maintain confidentiality
  9. To hold its authorities accountable
  10. To enable representative of choice
  11. To provide mechanism to lodge complaint
  12. To provide fair and just system
  13. To publish service standards and report periodically
  14. To reduce cost of compliance

Some other countries that already have such Charter-like provisions in their tax regimes include the US, Australia and Canada.

 

Assessing the Assessees

It’s no secret that the Income Tax Department can often be overbearing to meet its budgeted tax collection targets. As the Comptroller and Auditor General of India (CAG) noted in a 2019 compliance audit, “assessing officers committed errors in the assessments ignoring clear provisions in the Act”, adding that “the existing scrutiny assessment procedure is opaque”.

This situation is ripe for tax disputes and litigation, which are invariably a burden on the system. As per the Union Budget 2020-21, more than ₹8Lcr of “amounts under dispute” relate to direct taxes. Of these, around 40% have been pending for more than two years. Data also shows that the success rate of the tax department in tax cases at all levels of appeal is less than 30%.

Clearly, this is an imperfect system that is in dire need of reform. Features like faceless assessments, anonymous appeals, randomised allocations etc. Could help curb taxpayer harassment and unnecessary litigation. This in turn could encourage more citizens to pay their share of taxes.

Side Note: The Prime Minister lamented over the fact that in a country of 130cr people, only 1.5cr paid taxes. But this misses the larger point that most Indians aren’t required to pay direct taxes in the first place due to income tax slabs. Furthermore, every citizen pays indirect taxes, when they purchase any product at a shop or avail any service online.

Moreover, ironically, on the same day the Prime Minister lauded “honest taxpayers”, the Income Tax Department announced plans to expand the list of reportable financial transactions to include hotel payments, insurance premium payments, donations, travel expenses, jewellery purchases etc. Above a certain amount.

More items to declare, more forms to fill, more data to divulge!

FIN.

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