Prime Minister Narendra Modi on Thursday unveiled country’s first charter of taxpayers’ rights and duties and evoked a national appeal ahead of 74th Independence Day by asking citizens to introspect the fact that only 15 million in a population of 1.3 billion Indians actually pay income-tax.
Modi said taxation reforms in the last six years are centered on three concepts — seamless, painless and faceless – that have reduced complexities, cut tax rates, and decreased the number of litigations. It made the system more transparent, better compliant, and trusting taxpayers, which helped in raising the number of income-tax return filers by 25 million. Currently, there are about 70 million income-tax returns filers.
“This is a big increase. But we cannot ignore the fact that this [growth] is minuscule in a country of 130 crores. In such a large country, out of 130 crores, only 1.5 crore friends deposit income-tax,” he said while launching the ‘Transparent Taxation- Honouring the Honest’ platform through video conferencing on Thursday. According to the finance ministry officials, the gap between the total number of return filers (70 million) and actual taxpayers (15 million) is mainly because most of the people file zero tax returns.
He asked citizens to introspect and appealed those who could afford to pay tax. “Our introspection is necessary for ‘Atmnirbhar Bharat’ [Self-reliant India]… It’s 15 August after two days, remember those martyrs who sacrificed for Independence, then you will realise — yes, I should also contribute something,” he said in Hindi.
Experts said the taxation system is still complicated and intimidating that dissuades people to voluntarily come under its net. “The system of giving targets of revenue collection to officers must change,” said Daksha Bakshi, head of international tax at law firm Cyril Amarchand Mangaldas.
“We are yet to see measures for more taxpayers to come forward. Perhaps measures of how people are going to be scrutinized on the basis of various information reports and transactions related data that the department has gathered need to be made public for people to understand and assess the risk they face if they did not voluntarily come forward. Those who come forward voluntarily need to be pardoned for past lapses and not be persecuted,” she said.
PM Modi said there is a remarkable change in the approach of the income-tax department, which is increasingly becoming taxpayer-friendly and the platform – ‘Honouring the Honest’ — is the testimony. “This platform consists of major reforms such as faceless assessment, faceless appeal and taxpayers’ charters. The faceless assessment and the taxpayers’ charter have been implemented from today, while the facility for faceless appeal will be available to the people of the country from 25 September, which is the birth anniversary of Deen Dayal Upadhyay ji,” he said.
While technology-driven faceless assessment system aims to end overreach by officials, the charter defines rights and responsibilities of taxpayers. According to the charter, the income-tax department is committed to provide prompt, courteous and professional assistance to the taxpayer. “The department shall treat every taxpayer as honest unless there is a reason to believe otherwise,” the charter said.
According to the charter, the income-tax department shall collect correct amount of tax, respect privacy of the taxpayer, maintain confidentiality, reduce cost of compliance and publish standard for service delivery in a periodic manner. It also expects taxpayers to honestly disclose information, respond in time, pay taxes in a timely manner and keep themselves aware of compliance obligations.
In her budget speech on February 1, finance minister Nirmala Sitharaman had mentined about a taxpayer’s charter as part of ‘ease of living’. “We wish to enshrine in the statutes a ‘taxpayer charter’ through this budget. Our government would like to reassure taxpayers that we remain committed to taking measures so that our citizens are free from harassment of any kind,” she had said.
The faceless tax assessment system is, however, not new. It was first proposed by the Prime Minister in 2017 and received its mention in the first budget of finance minister Nirmala Sitharaman on July 5, 2019. The system was subsequently launched on October 7, 2019. Under the system random selection of tax cases are done through artificial Intelligence and machine learning, with a reduced discretion or no human interface from the income-tax department.
The objective of the faceless assessment is to completely eliminate physical contact between the taxpayer and the taxman to make tax administration objective, transparent and corruption free. The system works under National Assessment Center (NeAC) headquartered in Delhi and eight Regional Assessment Centers (ReAC) located in Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bengaluru and Hyderabad.
PM Modi said, “Now, the tax system is turning faceless, but it promises fairness and fearlessness to the taxpayer.” This will end the era of “jaan pehchan” (familiarity) in getting tax scrutiny and notices settled.
He said faceless assessment, faceless appeal and taxpayers’ charter are making the taxation system “people-centric and public friendly”, and the proposed faceless appeal aims at ease of compliance.
Confederation of Indian Industry (CII) president Uday Kotak said, “A policy-driven governance based on digital interface minimises grey areas, eliminates discretion and promotes transparency and certainty. The government’s strong governance agenda instils confidence among Indian industry and will empower the taxpayer, provide a transparent system and honour honest taxpayers.”
Central Board of Direct Taxes
Experts want the government, particularly to the Central Board of Direct Taxes (CBDT) to focus on immediate issues such as refunds and timely disposal of pending matters.
“These [the platform] are significant announcements from an Indian taxation perspective. However, having said this, it is expected that an overhauling of the tax department is also on the way and it is expected that the tax authorities would also ensure their deliveries within time,” SR Patnaik, partner and head of taxation at law firm Cyril Amarchand Mangaldas said.
Sudhir Kapadia, national tax leader at consultancy firm EY India said the launch of the platform will go a long way in ensuring ease of tax compliance’ for law abiding taxpayers. “As an immediate relief, it would be highly desirable if CBDT instructs release of all pending refunds to companies as quite a few companies are left with no choice but to consider approaching courts to expedite their refunds in these pandemic induced stressful business environment.”
Bakshi hoped that the charter will be implemented in letter and spirit. “A lot needs to be done to streamline the issues faced by non- residents who invest in India and who are partnering for business in India. They need to have tax certainty. Almost every transaction of large amount ends up in litigation. If India wants to benefit from China plus one policy, taxation of non-residents needs to undergo fundamental change,” she said.