The taxing charter

Taxpayer Rights: Deciphering the Indian Charter

Author: Mukesh Butani & Kinshuk Jha 

Publisher: Oakbridge

Pages: 202

Price: Rs 795

It is the time of the year when tax topics are back in circulation. The big trigger is of course the Union Budget due in just about another two months. The roll back of India’s retrospective tax law in August and the approval for a global minimum tax on corporate profits has already made 2021 a tax-mottled year. 

Taxpayer Rights edited by Mukesh Butani and Kinshuk Jha is consequently extremely topical. The authors are also aware of this. So even though the book is an elaborate review of the Indian Charter of taxpayers’ rights, the fly page of the book notes the significance of the roll back. “It makes us only hopeful for future tax reforms in the larger context of taxpayer rights,” they write. Those rights, too, are also recent. Just a year ago, Budget FY21 inserted a new section 119A to notify the Taxpayers Charter, specifying the rights of the taxpayers and their obligations.

Mukesh Butani, founder and managing partner at BMR Legal Advocates, needs no introduction in the world of direct tax. Along with Kinshuk Jha, associate professor and executive director, at the Centre for Comparative and International Taxation in Jindal Global Law School, he has taken up an often bitterly contested agenda between the tax department and tax payers. The contributors for each of the seven chapters are drawn from their respective teams. The sub title of the book, “Deciphering the Indian Charter” is instructive. The Charter has to be clarified for the tax personnel as much as brought home for the taxpayers. 

Incidentally, Mr Butani was also a member of the Parthasarathi Shome-led Tax Administration Reform Commission which, for the first time, analysed taxpayer rights in the Indian context. Till then, tax reports focussed on expanding the role of the tax departments and bringing in new taxes into the orbit, such as the Raja Chelliah committee on service tax and the two Kelkar committees on the goods and services tax and so on. As Dr Shome notes in his Foreword for the book, to balance between the needs of the tax administration and yet meet the legitimate expectations of the taxpayers based on a charter becomes a “challenging balance to achieve”. 

It becomes more challenging when the tax administration is used by successive administrations as a surrogate police force. That the role of the member (investigation) in the Central Board of Direct Tax has been taken over by all chairmen since Sushil Chandra, current chief election commissioner, is no coincidence. The threat of use of coercive power by tax officials for reasons more political than assessment-related, is much more than tax terrorism. However, despite a nod in that direction, Messrs Butani and Jha explore the more mundane problem of high-pitched tax demands and how instituting taxpayer rights can curb those. 

It is highly topical as the editors point out. “Tax administrations tend to take aggressive positions leading to controversies and tax disputes. Considering our sluggish dispute resolution mechanism, such an approach by the administration makes the tax environment adversarial and non-conducive for tax payers…. A case in point is retrospective taxation and arbitrary use of high handed tactics such as arrest and seizures by tax officials. Tax terrorism creates distrust in the minds of the taxpayer and adversely affects timely tax collection,” they write.

They emphasise this is what the tax department has set out to correct by instituting the charter. Offering international evidence they show these charters have worked well not only in OECD countries but in diverse geographies such as Kenya, Brazil or Russia. A highly useful checkbox in this context is the comparison of the digitalisation efforts by India compared with a host of other countries. There is no doubt India comes out very well, in spite of the recent problems such as Faceless Assessment schemes. What comes out clearly is that the charter needs to become a list of rights with corresponding duties for the taxpayers for the state to be able to ensure a high voluntary level of tax compliance. “Without enforceability, the Charter is liable to be seen merely as law in books, disconnected from the very real problems it seeks to mitigate,” they point out. 

A laundry list of recommendations by the authors in this context is useful. Their recommendations for training of tax officials, for use of blockchain, audit of tax scrutinies and assessment, all merit considerations. The more complicated one is the demand for fiscal policy reforms. They argue that tax certainty can only come in this environment. “The tax statutes should be precise in their language with an adoption for a general taxonomy of terms and expressions” agreed upon internationally. It will balance India’s problems with arbitrations as more foreign companies arrive here. They accept this could mean tax laws will be “long and overly wordy. Be that as it may, the objective of certainty cannot be reached through a piecemeal approach to amendments time and again”. This is a sage conclusion to adopt by the government reported to be planning to introduce a Direct Tax Code.