From vivad to samvad, to gain vishwas

The culture of 'collect first, correct later' needs to change

The Union government’s Vivad se Vishwas scheme is a significant attempt at dispute resolution that can bring trillions of rupees to the exchequer. At least, the government seems to think so. After all, the total amount under dispute, shared almost equally by individual and corporation taxpayers, is a whopping Rs 8 trillion. Reports suggest that the finance ministry has given a target of Rs 2 trillion or around 25 per cent of the disputed amount to tax officials by March-end, with this additional incentive: “The performance of officers in respect of ‘Vivad Se Vishwas Scheme’ will be specifically commented upon by the Reporting and Reviewing officers and shall be an important factor in determining their future postings.”

 
The question: What is the reason for this vivad (dispute)? The lion’s share of the disputed amount, of over Rs 7 trillion, are cases less than five years old. Of this, the maximum, or Rs 4.8 trillion, pertains to cases less than two years old.
 
And vivad seems to have risen significantly in the last decade. In 2009-10, the disputed amount stood at Rs 66,536 crore, when the number of assessees was 34.7 million. The latter has not even doubled in a decade, rising only to 67.3 million in 2018-19. Clearly, vivad is increasing at a much faster clip than the number of taxpayers.

 

It’s not that the finance ministry is unaware. Since Budget 2019-20, and after imposing an additional tax on the “super-rich”, Finance Minister Nirmala Sitharaman has held multiple press conferences across the country trying to placate frayed nerves. Even Prime Minister Narendra Modi has declared several times that the government is not against wealth creators.
 
There is some ground action too. Since October, the new “faceless” income tax assessment regime has been introduced. This is expected to eliminate direct interaction between taxpayers and tax officials. And possibly, corruption. Besides, the latest option of allowing taxpayers to give up exemptions for lower rates will definitely reduce paperwork for those who opt for it.

 
But again, the Union Budget 2020-21 has introduced an element which has a good potential for future vivad – withholding tax on outward remittances. Called tax collected at source (TCS), this will be imposed on amounts of over Rs 7 lakh under the liberalised remittance scheme (LRS), including overseas travel. Since the amount will have to be claimed, a lot of taxpayers might be asked to produce more documents, resulting further disputes. P C Mody, chairman of the Central Board of Direct Taxes (CBDT), has argued that a government study came across cases in which there were mismatches in the returns profiles of remitters, and it was just a case of cataloguing the remittances and matching returns. The remitter is not paying a second tax but gets credit on that, is the rebuttal.

 
The counter-argument: If there are dubious transactions, they are anyway being recorded because of transfers through bank accounts. After all, banks do data mining of transactions under the LRS. After the introduction of Aadhaar, it should be easy to match returns vis-a-vis transactions. Penalising everyone for the crimes of a few makes things more complex for the ordinary taxpayer. In addition, if it is just a question of tracing, why 5 per cent and not 0.5 per cent?
 
Also, sectors like education will feel some heat because many parents borrow to fund their children’s overseas education. Paying tax on borrowed money would, well, not feel too good. Indians remitted as much as $3.5 billion abroad in FY2019, one-third of outward remittances, for educational purposes. The TCS collections, even if it is on 50 per cent of the total $13.7 billion remitted abroad under LRS, would be $300-odd million or around Rs 2,000 crore.

 
The historical template of “collect now, correct later” lies at the core of most disputes. For years, tax officials were given unrealistic targets, not backed by good enough data. The result: Tax terrorism. The officer needed to simply collect for a good posting or promotion. Worse, a few years back, the CBDT introduced a 20 per cent charge on taxpayers who chose to appeal against any demand. It does not seem to have helped.
 
In the past six years, besides demonetisation, we have had three voluntary disclosure schemes, all to flush out black money. Maybe, it’s time to move from vivad to samvad (dialogue), to truly bring vishwas (trust).