PIB - Tax Administration Reforms Commission

BACKGROUND FROM IE Government Sets-up Tax Administration Reform Commission Under Dr. Parthasarathy Shome

In his Budget Speech 2013-14 in the Parliament on 28.02.2013, the Finance Minister had announced as under:      “An emerging economy must have a tax system that reflects best global practices. I propose to set-up a Tax Administration Reform Commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system.” {{              Accordingly, the government has set-up a Tax Administration Reform Commission (TARC). The term of the Commission will be 18 months. The Chairman of the Commission is Dr. Parthasarathy Shome and will be in the rank of Minister of State.  The Members of the Commission are as follows: Full- Time Members: 2 ·                     Shri Y.G. Parande ·                     Ms. Sunita Kaila Part-time Members: 4 ·                     Shri M.K. Zutshi ·                     Shri S.S. N. Moorthy ·                     Shri M.R. Diwakar ·                     Shri S. Mahalingam The Terms of Reference of the Commission will be as follows:- ·                  To review the existing mechanism and recommend appropriate organizational structure for tax governance with special reference to deployment of workforce commensurate with functional requirements, capacity building, vigilance administration, responsibility and accountability of human resources, key performance indicators, assessment,  grading and promotion systems, and structures to promote quality decision making at the highest policy levels. ·                  To review the existing business processes of tax governance including the use of information and communication technology and recommend measures for tax governance best suited to Indian context. ·                  To review the existing mechanism of dispute resolution covering time and compliance cost and recommend measures for strengthening the same. This includes domestic and international taxation. ·                  To review the existing mechanism and recommend capacity building measures for preparing impact assessment statements on taxpayers compliance cost of new policy and administrative measures of the tax Departments. ·                  To review the existing mechanism and recommend measures for deepening and widening of tax base and taxpayer base. ·                  To review the existing mechanism and recommend a system to enforce better tax compliance - by size, segment and nature of taxes and taxpayers, that should cover methods to encourage voluntary tax compliance. ·                  To review the existing mechanism and recommend measures for improved taxpayer services and taxpayers education programme. This includes mechanism for grievance redressal, simplified and timely disbursal of duty drawback, export incentives, rectification procedures, tax refunds etc. ·                  To review the existing mechanism and recommend measures for “Capacity building” in emerging areas of Customs administration relating to Border Control, National Security, International Data Exchange and securing of supply chains. ·                  To review the existing mechanism and recommend measures for strengthening of Database and Inter-agency information sharing, not only between Central Board of Direct Taxes (CBDT) and Central Board of Excise andCustoms(CBEC) but also with the banking and financial sector, Central Economic Intelligence Bureau (CEIB), Financial Intelligence Unit (FlU), Enforcement Directorate etc. and use of tools for utilization of  such information to ensure compliance. ·                  To review the existing mechanism and recommend appropriate means including staff resources for forecasting, analysis and monitoring of revenue targets. ·                  To review the existing policy and recommend measures for research inputs to tax governance. ·                  To review the existing mechanism and recommend measures to enhance predictive analysis to detect and prevent tax/economic offences. ·                  Any other issue which the government may specify during the tenure of the Commission. Tax litigation is rising while collections remain stagnant. A more responsive system is needed If the dramatic increase in the number of tax demands being made, or the rise in resultant tax litigation, was accompanied by an equally large hike in tax collections, it might be acceptable, even though upsetting taxpayers, especially if they are large corporates, is seldom a good idea, given that they are also investors. With a tax-GDP ratio of 10.3 per cent in 2012-13, however, the number isn't dramatically different from the pre-reforms 10.32 per cent in 1989-90. Meanwhile, apart from the high-profile Rs 20,000 crore tax demand on Vodafone, despite the telecom major winning its case in the Supreme Court, transfer pricing adjustments — where the taxman says Indian arms of MNCs are declaring lower incomes to avoid taxation — surged from Rs 44,000 crore in 2011-12 to Rs 70,000 crore in 2012-13. While tax arrears have doubled from Rs 2.5 lakh crore in 2010-11 for direct taxes to Rs 4.8 lakh crore in 2012-13, it's useful to keep in mind just how meaningless much of this has been, and the costs of alienating potential investors. Over 60 per cent of the appeals filed by the taxman were dismissed in various courts in 2011-12. It is to fix this, or as much of it as can be fixed, that the finance minister has constituted a tax administration reforms commission under Parthasarathi Shome — it's a different matter that the suggestion of another Shome-led committee, that the Vodafone retrospective amendment be rolled back, has been disregarded. Shome's task is to look at how to make the department less intrusive while making it more effective, and to come up with key performance indicators — the ratio of successful tax collections versus the tax demands raised, for instance. Some solutions have already been put in place. In the case of service taxes, mandatory e-filing has made a marked difference since the computer rejected returns which took credit for payments made by vendors who didn't have valid service tax numbers — immediately, it was in the interest of big firms to ensure the vendors they used filed their service taxes. A 34 per cent rise in e-filing of personal income taxes in FY13, similarly, ensured a 21 per cent rise in taxes in a year the economy grew at its slowest pace in years. Such e-filing lets the computer immediately tell the taxman that the assessee's income is way below his credit card spending — in FY13, while just 14.6 lakh persons declared an income of more than Rs 10 lakh, 52.4 lakh persons invested more than Rs 2 lakh in mutual funds. The income tax department's IT gameplan will be critical.