As disputes between the tax department and taxpayers are on the rise, a panel headed by Parthasarathi Shome, advisor to the finance minister, is considering a review of the judicial powers of assessing officers.
"We are discussing the role of the tax authority at the judicial level," Shome said at an event organised by the Associated Chambers of Commerce and Industry. He heads the Tax Administrative Reforms Commission (TARC).
There are complaints about assessment officers resorting to unsubstantiated demands. They have quasi-judicial powers. They can disallow expenditure shown by an assessee, order an adjustment to the income statement, call for information, conduct search and seizures, re-open assessments, give instructions to get the accounts audited and enforce attendance of witnesses, among others.
In response to a query from industry representatives on harassment by the officers, Shome said, "I hope in TARC we are able to deconstruct the behaviour pattern of both the tax assessment officer and taxpayers."
TARC was mandated to review the application of tax policies and laws in the context of global best practices, and to recommend reforms. It has an 18-month term; the first report will be given to the finance ministry in May.
Shome agreed the revenue collection targets given to field officers sometimes pressure the latter. And, the targets set at the year's start need reviewing time to time, with changing economic conditions. He added in some cases assessing officers were worried if they became too business-friendly, questions could be asked about their motives: Which is why they raise a demand knowing it might not stand the test of justice.
Highlighting in dispute numbers, India was on top, Shome said dispute management had to be fundamentally reformed and the onus should not be only on the department but also the taxpayer. "There should be truncation from the taxpayer side, too," he said.
"From 36-million taxpayers (personal income tax), we can easily go to 50. That will enable tax rationalisation and the tax rate can also come down," he said, adding the aim should be to improve voluntary compliance.
He said information technology could play a huge role in the proposed reforms and stressed the need for accountability and transparency in the department, with an ability to assess customer needs by measuring compliance cost and carrying out customer surveys.
Shome suggested there could be amalgamation of the direct and indirect tax departments, as in many countries, to reduce duplication of work. "It scrutiny is done together it will help both the tax administration as well as the tax department. We will provide global practices to look at that and see how far we are from that," he said.