Editorial
One often hears claims by tax
officials that India has one of the lowest tax rates in the world for
individuals, that the effective taxes paid by companies in India as a percentage
of their profits is very low as compared to that paid by companies in other
countries, etc. Are such claims really true ? Do such claims take into account
the real effects of our tax system on taxpayers ?
What one needs to keep in mind
is that the taxes as per the rates found in the Finance Act are not the only
taxes that a taxpayer ends up paying. MAT, wealth tax and FBT add to the tax
burden. The provisions of our tax laws ensure that a taxpayer ends up paying
taxes not only on his real income, but on various other items added to his
income for non-tax reasons. To illustrate, salaried employees pay taxes on
retirement compensation (which is really a capital receipt), on stock options
which may not fetch any return, etc. Businessmen pay taxes on delayed payments
of provident fund, taxes, duties and fees, on cash expenses exceeding certain
limits, on expenses on which tax is not deducted at source, and on penalties
incurred in course of business. Most people pay taxes on capital appreciation on
sale of assets, though at current prices they may be worse off, since cost
inflation index neutralises only 75% of consumer inflation. Over the years, one
has learnt to live with such unfair provisions, which result in more tax than
the fair tax on one’s income.
In recent years, one sees a new
dimension being added to such backdoor taxation. Let us look at some
developments :
-
Software used for processing of income tax
returns is defective, computing wrong amounts of tax in respect of long term
capital gains, giving rise to incorrect demands and lower refunds.
-
Online system of TDS is started, and the
return-processing software gives credit only on the basis of the online tax
credit as per the TIN system, which is normally less than half the amount of
TDS claimed. Demands are raised and refunds refused on basis of such non-grant
of tax credit (TDS). Applications for rectification remain unattended to, in
spite of all relevant TDS certificates being filed. There is no provision for
speedy redressal of such grievances.
-
Banks are asked to upload tax payment details
online into the TIN system. Invariably, bank clerks make errors, on account of
which the taxpayer does not get credit for taxes paid. The taxpayer has to
approach the Assessing Officer a number of times to get credit for each such
payment incorrectly entered by banks. Wrong demands are raised and refunds
refused on account of credits not granted.
-
Even before the TIN system has stabilised, and
while thousands of crores of taxes paid by way of TDS and advance taxes are
lying unadjusted against the correct taxpayer PAN, TDS credit rules are
amended to provide that credit shall be given not on the basis of TDS
certificate, but on the basis of quarterly e-TDS statements filed by the tax
deductor. No provision is made for any method for the deductee to ensure that
his PAN is quoted correctly by the deductor. The deductee is now therefore
left at the mercy of the TIN system and the tax deductor for getting credit of
TDS.
-
E-filing and centralised processing of tax
returns are introduced ostensibly to speed up the processing of tax returns.
It is then realised that the e-filed returns cannot be processed by the
software, which is not yet operational, and that the whole process of refunds
will get held up.
-
No effort is made to ensure that rectifications
and appellate effects are speeded up.
Taking each of these happenings
in isolation, one can understand that these could be due to teething problems.
However, when one sees that no efforts are being made to sort out past problems,
that existing problems are sought to be kept under wraps, and that new problems
are being created without a care for taxpayer difficulties, one wonders whether
there is more to this than meets the eye.
Computerisation of the tax
system was supposed to make the whole process of tax payment and recovery more
taxpayer-friendly. In reality, the system is being experimented with at the cost
of the taxpayer. Given India’s famed skills in software, the computerisation
efforts should not have caused so much difficulty to so many.
The least that the CBDT can do
to dispel taxpayer doubts is :
-
Admit the problems being faced and share with
taxpayers the progress being made in resolving the problems on an ongoing
basis;
-
Set up alternative mechanisms to deal with
computerisation/software defects & failures, so that taxpayers do not suffer
due to such defects; and
-
Ensure that in future, computerisation of processes by taxpayers is not made
mandatory unless the software and systems are ready, tested, and found to be
mistake-proof and reliable.
