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Tax reforms panel suggests big, rapid changes

20 June, 2014

The Tax Administration Reform Commission (TARC) headed by Dr. Parthasarathi Shome has suggested merging of two Boards – Central Board of Excise & Customs (CBEC) and Central Board of Direct Taxes (CBDT). The panel says such integration of management can be achieved in 5 years time. Having separate Boards is not in tune with global best practices as per the first report of the commission.

Deriving support from the report of Tax Reforms Committee chaired by Dr. Raja Chelliah in the nineties, the TARC calls for abolition of the post of Revenue Secretary. This officer being a generalist is being seen as not possessing requisite technical expertise in taxation, in particular the emerging global trends in taxation of entities. The report recommends making Chairmen of the Tax Boards directly answerable to the Finance Minister.

The TARC points to risk aversion at the apex level percolating down to the levels of Chief Commissioner and Commissioner. It is because of such risk aversion that the department attempts to pass on the risk to taxpayer by issuing protective demand notices. The Boards ought to display courage to defend their decisions, according to the Shome Commission’s First Report.

In its interaction with taxpayers, the TARC has found them expressing helplessness against rude or arbitrary behaviour of the tax officers. The assessees are largely aggrieved over rudeness in communication, not maintaining time, buck-passing, etc. The panel also highlights the demand for bribes to get refunds, to hold back infructuous demands or speed up processes. Senior officers have admitted before the commission that they are ineffective in controlling such “moral hazard” as the report puts it. Rejecting refunds or delaying refunds and not paying interest on such delayed refunds have been found to be rampant in both the direct and indirect tax departments.

A crucial deficiency in the tax administration is absence of customer focus, as per the TARC report and it calls for rapid reforms in this direction. A Member in each of the two Boards should exclusively deal with taxpayer services. For large businesses, CBEC and CBDT should have single umbrella for service delivery.

Retrospective amendments should be avoided and special drive for liquidation of cases should be undertaken. To minimise disputes, the TARC says clear interpretative statements should be issued and they shall be binding on the department. To make dispute resolution process collaborative, the panel recommends that pre-dispute consultation should be put in place before issuing show cause notice (SCN).

Expanding the jurisdiction of Advance Rulings Authority, strengthening the Settlement Commission, re-structuring the office of Commissioner (Appeals), increase in payment gateways to improve taxpayer services, providing for single registration under Central Excise and Service Tax, providing for disclosure of information in returns to ward off allegation of suppression and the like are a few other major recommendations in this first report of the TARC presented to the government on 30-5-2014.
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