Measures to check tax disputes in next Budget

Shome panel's prescription on these in its first report likely to be part of the proposals

The finance ministry plans to allay investor fear on tax uncertainty in India. The idea is to introduce in the next Budget a number of safeguards for preventing disputes with taxpayers.

A panel headed by Parthasarathi Shome, advisor to the minister, will recommend such measures as part of reforms in tax administration. His Tax Administrative Reforms Commission (TARC) has prepared basic guidelines for changes needed in the system to raise compliance and mitigate risks for taxpayers. Its final report,  first in a series of five, will be given to the government in May. It will recommend measures for assessing compliance cost and administrative measures on taxpayers.

“The draft report is talking about an approach towards preventing tax disputes and reducing risks for taxpayers by improving the administration. The recommendations will form part of the Budget announcements in June or July,” said a ministry official, who did not wish to be identified.

The seven-member TARC has held meetings in Delhi, Mumbai, Bangalore, Chennai and Kolkata to seek views from industry and other stakeholders.

Experts say more than the legislation, it is the problems in implementation of tax laws which need to be addressed. “Some specific suggestions for checks and balances have been made to the Tax Administrative Reforms Commission to prevent the possibility of high-pitched assessments happening, as opposed to trying to deal with these after the bullet has been shot,” said Ketan Dalal, joint tax director, PwC India.

He said the Tax Administrative Reforms Commission could look at ways to prevent disputes by checks and balances. And, measures for dispute settlement within reasonable time limits.

Taxpayers often accuse assessing officers of pegging their income at high levels, particularly in transfer pricing cases, to meet their own revenue collection target. This often leads to litigation.

The Commission is considering suggestions for accountability in making assessments and raising demands, widening the scope of dispute resolution panels to cover domestic companies (currently restricted to international tax and transfer pricing disputes) and bringing in people from outside the department in the panel.

Also, an independent panel for clarification on various issues and settling disputes through an arbitration process, as in the Consent Committee of the Securities & Exchange Board of India, among others.

The report might propose to involve both private sector representatives as well as revenue officials in identifying quicker solutions for long-term issues. It will also suggest how to use technology and analyse data to sharpen the focus of tax administration, besides adopting a customer-centric approach.

TARC was formed in the wake of an announcement in this regard in Budget 2013-14 by Finance Minister P Chidambaram. The idea was to review application of tax policies and laws in the context of global best practices. And, to recommend measures for reforms in tax administration to enhance its effectiveness.

The term of the Commission is 18 months and it works as an advisory body to the ministry.

UNDER TARC’S CONSIDERATION

* Mechanism to track assessments exceeding a particular limit

* Making assessing officers more accountable

* Bringing Indian corporate under Dispute Resolution Panel

* People from outside department to constitute DRP

* Opportunities to approach DRP before draft order is passed

* An independent panel for giving non-binding clarifications

* A system of settling disputes through an arbitration process