Ease of doing business and tax administrative reforms go hand in hand

Complex procedures must be done away with; there’s a need to train personnel to deal with sensitive matters

Updated: Feb 17, 2016 09:20:24 AM UTC
taxpayers
One of TARC's suggestion was to start treating taxpayers as ‘customers’ (Photo: Anindito Mukherjee / Reuters)

Investment decisions are normally driven by economic reasons but also by the business and regulatory environment in a particular jurisdiction. Creating a business-friendly environment with an element of certainty, transparency with an eye on growth has always been on top of the government’s priority list. Reaching out to stakeholders for inputs/suggestions on some of the new legislations proposed to be introduced has also been a practice that we have seen in a greater degree in the recent past, which not only enhances the transparency in decision making but also provides quality control on any tax action.  Nevertheless, while one looks at the business and fiscal environment, one cannot afford to lose sight of the developments in the economy and some of the policy decisions taken, including administrative measures that foster economic growth.

One of the key factors that has always gained attention is a stable and robust administrative setup which is a prerequisite for any business or economy to flourish or achieve the stated long term objective. When one takes a look at some of the developed countries, it seems an achievable task and one wonders whether India can reach the same state. Having said so, dealing with administrative setup, be it at the time of initial approval, processing of licenses and obtaining permits, does lead to a lot of interactions with the administration. A focussed approach on trying to streamline some of these procedures, including the setting up of a single window process and effective implementation of “minimum government and maximum government” motto of the government, could, go a long way, help the business fraternity. It is imperative that the Centre and the state think and implement steps in the same direction.

As a step towards identifying and laying out a roadmap towards a robust tax administration, the Tax Administrative Reforms Committee (TARC) that was set up under the able leadership of Dr Parthasarathi Shome, which examined the nuances, impediments and the practical difficulties both from a taxpayer and a tax administrator’s standpoint was one of the first steps taken in this direction, especially the entire customer centric approach vis-a-vis the taxpayer and collaborative approach among the various authorities, which was a welcome change, both from an administrator and taxpayers perspective.

Recognising the fact that if one has to deal with a complex business environment, one has to equip its people with skilled resources and trained personnel, including partnering with external research organisations for strengthening the research and analytical  skills, which is a very progressive step in itself

As regards to the dispute resolution, which again is one of the key contributors to a stable business environment, it did find place as one of the agenda items with a specific focus to mitigate the number of disputes and cut down on the issues that would come up for litigation. To meet this agenda, TARC suggested that the two Boards (ie, Central Board of Direct Taxes [CBDT] and Central Board of Excise and Customs [CBEC]) must proactively issue clarification circulars and should desist from filing of appeals against well-reasoned and sound orders passed.  Non filing of appeal by the government against the Bombay High Court decision of Vodafone was an example in this regard. Further, recently, various initiatives have already been taken by the CBDT to cut down on litigation which, inter-alia, include revising the monetary limits for filing of appeals by the department, directing the Principal Chief Commissioners to constitute a collegium of Chief Commissioner of Income tax to consider withdrawal of appeals filed by the department in cases involving tax effect above revised monetary limit from high courts in certain circumstances, issuing number of circulars for withdrawing or not pressing of appeals on settled issues.

Another suggestion of TARC of treating taxpayers as ‘customers’ and adopting a customer-centric approach was a progressive step towards administrative reforms. In fact, recent modification of annual performance appraisal report (APAR) for tax officers, wherein, their performance being measured based on quality of assessments, pace of disposal and efforts towards widening of tax base, instead of usual tax collection targets, will also go a long way in bringing accountability in assessment functions and ensure taxpayers services.

This was recognised given that India as an emerging economy was not only growing in terms of volume but the complexity in terms of business transactions was also increasing given the new ecommerce environment, cross-border investments, complex financial instruments and India Inc going global.

While one would expect that there would be changes to the overall approach in terms of dealing with the incentives, corporate levy, there would also be some expectation on setting up a strong tax administrative front and implementing the recommendations maybe not in the immediate years but over the 2-3 year period which would contribute towards a stable and predictable fiscal environment and a stable business environment.

- By Rajeshree Sabnavis, Partner, BMR & Associates LLP

The thoughts and opinions shared here are of the author.

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