Recently, Prime Minister Narendra Modi launched the “Transparent Taxation: Honoring Honesty” platform, unveiling a series of measures aimed at reducing the burden of compliance and rewarding honest taxpayers.
- Broadly speaking, the three pillars of the platform are faceless assessment and appeal, to eliminate the physical interface between the tax department and the taxpayer, and a taxpayer letter detailing the taxpayer’s rights and obligations.
- In a country where the tax system is very complex, often preventing compliance, the attempt to make it “transparent, painless and faceless” is welcome.
- The income tax service is often accused of being overzealous in its quest to meet budgeted tax collection targets. This often results in the appraisal of agents raising unreasonable demands that lead to lengthy tax disputes and litigation.
- As noted by the Comptroller and Auditor General of India (CAG) in the Department of Direct Taxes Compliance Audit on Union Government Revenue in 2019, “Assessment Officials (AO) have made assessment errors by ignoring the clear provisions of the law ”, adding that“ the assessment by existing control procedure is opaque.”
- The magnitude of the problem is quite serious. According to the Union budget for 2020-2021, Rs 8.02 lakh crore of “amounts in dispute” relate to direct taxes. Of these, about 40% have been highlighted for more than two years.
- According to the data, 3.41 lakh of cases related to direct taxes were pending before the Commissioner (appeal), while 92,205 cases were pending before the Income Tax Appeal Court (ITAT) as of March 31, 2019.
- What is more surprising, the success rate of the tax service in these cases is very low and the 2017-2018 economic study, the success rate of the tax service in tax cases at all levels of appeal (appellate courts, superior court and supreme court) is less than 30%.
- Hence, moving to a faceless assessment and appeal framework (some of these steps have been in place for some time) is a step in the right direction.
- Measures such as automated case-randomization, randomizing calls to any official in the country, and ensuring agent anonymity could help reduce litigation and end taxpayer harassment.
- The Prime Minister also sent a letter to taxpayers, indicating an attempt to close the trust gap between the taxpayer and the tax service. However, applicability will pose challenges.
- The rights of taxpayers must be clearly defined and will be binding on the tax service. But at a broader level, there is a need to re-evaluate and reconfigure the functioning of the tax service by developing capacities to control tax evasion and broaden the tax base, while discouraging unreasonable tax demands and slowing down litigation.
Government of India Announcement on August 13, 2020 on Tax Transparency
- Honoring Honesty [T2-H2] is an extension of the 2019 Electronic Assessment System launched by the Government of India in September 2019.
- The The objective of the platform is to perform anonymous appraisal, anonymous appeal and implement the taxpayer’s letter. While the Taxpayer Letter and Faceless Assessment are implemented with immediate effect, the Faceless Appeal will take effect on September 25, 2020.
Electronic evaluation and faceless evaluation
- The word electronic evaluation is replaced by the word faceless evaluation in the law. In the electronic evaluation, the evaluator will meet with the evaluation manager who will perform the evaluation procedures.
- In a faceless appraisal, the appraiser will not be aware of the appraiser who will perform your tax appraisal. The e-assessment consisted of multiple assessors responsible for the assessment, while in the faceless assessment there will be a team (NeAC, ReAC, VU, TU, explained later in this article) of assessment officers who will perform assessment. The section 144 assessment (that is, the best judgment assessment) is also discussed in
A 14 point taxpayers’ Charter
The taxpayer’s letter was addressed for the first time in the budget speech of the Honorable Minister of Finance during the presentation of the budget for the year 2020-2021. The taxpayer charter was first spoken in the budget speech by Honourable Finance minister while presenting budget for the year 2020-21.
The 14 Point taxpayer charter includes the following:
1. Provide fair, courteous, and reasonable treatment
2. Treat taxpayer as honest –
3. Provide mechanism for appeal and review
4. Provide complete and accurate information
5. Provide timely decisions
6. Collect the correct amount of Tax
7. Respect privacy of taxpayer
8. Maintain confidentiality
9. Hold its authorities accountable
10. Enable representative of choice
11. Provide mechanism to lodge compliant
12. Provide a fair and just system
13. Publish service standards and report periodically
14. Reduce cost of compliance
To implement the Taxpayer Charter the department expects following from the Taxpayer
1. Be Honest and Compliant
2. Be informed
3. Keep accurate records
4. Know what representative does on his behalf
5. Respond in time
6. Pay in time.
Appeal scheme – as per Budget 2020
As a part of Government initiative to have greater transparency, efficiency, and accountability in the assessment process, the e-appeal scheme is to be made on similar lines of e-assessment by making amendments to Section 250(6A) of the Income Tax Act. E-Appeal scheme to have following features
1. Empowering Govt. to notify e-appeal scheme for disposal of appeals
2. Eliminating interface between Commissioner (Appeals) and the appellant during appeal proceedings to the extent technologically feasible
3. Optimizing utilisation of the resources through economies of scale and functional specialisation
4. Introducing appeal system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner (Appeals)
The Govt. is yet to notify the E-Appeal scheme and is expected to be made effective from 25th of September 2020.