The report of the Tax Administration and Reform Commission (TARC) headed by Parthasarthi Shome, put up by the finance ministry on Friday, blamed the target-driven approach of the tax department for litigation.
“In a target-driven approach the authorities end up taking a stand that is not in conformance with the law. This leads to unnecessary litigation and causes loss of credibility for the tax department,” said Rajesh Simhan, head of the tax practice at Nisithdesai Associates.
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The TARC has recommended the direct and indirect tax departments should maintain two forecasting systems. “The first one focusing on the short-term forecasting horizon (say, up to six months), and the second focusing on longer time horizons (greater than six months),” the report stated.
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According to estimates over Rs 65,000 crore of large taxpayers’ money is stuck in litigation. Tax expert said this figure could be higher if all domestic litigation were accounted for.
The report said the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) should change their approach to identifying debtors rather than debts.
According to the TARC, the forecasting process needs to be more transparent for which a small unit, comprising tax officials and officers from the Department of Economic Affairs and the Reserve Bank of India should be set up within the TARC-recommended Tax Policy and Analysis unit.
“The report (revenue forecast) can be presented to Parliament as part of the FRBM Act. These reviews can be done twice, one after six months of the start of the fiscal year and another after 10 months,” the report stated.
“The ministry of finance will need to study these recommendations and pick those which are practical and easy to implement. This report needs to be used for medium to long-term reforms,” said Neeru Ahuja Partner, Deloitte Haskins & Sells.
The report has detailed recommendations of medium to long-term reforms and also an immediate action plan. It suggested the direct and indirect tax boards should launch a special drive for review and liquidation of cases by setting up task forces.