Indian taxpayers live in an
atmosphere of uncertainty with regard to various tax issues, e.g., applicability
of tax rates, chargeability of income to tax, allowability of claim for
expenses, liability to deduct tax at source, retrospective amendments and so on.
These uncertainties and consequential tax risk become apparent if one looks at
high pitched assessments, conflicting judicial decisions, abnormal delay in
settling tax disputes and above all the trend to change tax laws with
retrospective effect.
Indian taxpayers as well as the
global investors consider this as high risk. Business plans, profit estimation,
cash flows, etc., go haywire when the unexpected tax demand is raised on the
taxpayers particularly when the law is amended with retrospective effect. Along
with the tax liability there is additional liability for mandatory interest for
non-payment of advance tax or delayed payment of tax for the relevant year.
The Finance Bill, 2008,
presented before the parliament has the distinction of introducing many direct
tax proposals to be effective from earlier dates. The reason given for these
retrospective amendments is that they are proposed to clarify the legislative
intent. Now, it is a moot question as to how the taxpayer will be able to
ascertain the legislative intent behind insertion or modification of any
provisions in the statute.
Once the judiciary including
apex court interprets the law after analysing the statute, one wonders whether
it is ethical and equitable for the Government to amend the law retrospectively
under the guise of legislative intent.
The trend of retrospective
changes in the law destroys the trust between the Government and the taxpayer.
If the Government genuinely wishes to develop atmosphere of mutual trust with
the taxpayers, it must refrain from bringing retrospective changes in law for
small revenue gain. No regulation can be truly effective unless it is
accompanied by ethical approach.
Any inequitable action of the
Government that shakes taxpayers’ confidence will not help the nation in the
long run. When a taxpayer who succeeds in the apex court after a long drawn
legal battle is compelled to pay tax on account of retrospective change in the
law, he considers it to be mockery of justice and equity. The Government, after
losing the tax matter in the Court should not become a winner by changing the
rules of the game through retrospective amendment. At least the retrospective
changes should spare those who have succeeded at the appeal stage.
One does not question the power
of the legislature to make retrospective amendment, but one believes such power
should be used sparingly and that too only for extra-ordinary matters. It should
not be used merely to overrule every single judicial development that causes
discomfort to the administration.
That apart, the taxpayer is
burdened with the levy of mandatory interest under sections 234A and 234B on
additional tax liability due to retrospective change in the law without any
justification. Such an interest burden is unjust. There should be in-built
provision in the law for not charging interest in case of increase in tax
liability due to retrospective amendments to the law.
Accountability, a virtue for a
good administration and good governance is yet to be brought on the statute.
Accountability as applicable to the taxpayer should equally be made applicable
to the tax collector. Accountability, if introduced, will certainly infuse
confidence amongst the taxpayers. Today, the taxpayer is liable for penal
consequences for any default committed by him. Similarly, tax administration
should also be made responsible for any lapse on its part.
Instead of bringing much
awaited accountability in the administration, the Finance Bill, 2008, seeks to
provide that a notice issued by an income tax authority will be presumed to have
been served in a proper manner and in time, if the assessee co-operates or
appears in the assessment proceeding.
Such co-operation will validate
the assessing officer’s lapse in serving a valid notice. The irony of this
proposal is that the assessee who co-operates in the assessment proceeding in
spite of improper service of notice is penalised for his cooperation. Such
procedural changes in the law to cover up the lapses of the tax officials have
demoralising effect on the taxpayers.
At the end, any taxpayer
prefers to have reasonable estimate of its tax consequence. He should be in a
position to manage tax risk without having any unexpected or unreasonable impact
on liquidity, profitability, cost structure and future investment plans.
Unexpected tax burden due to retrospective amendments shakes the confidence of
the taxpayers.
Various retrospective
amendments including proposal to modify the penalty provisions, are proposed in
the Finance Bill, 2008. The Society has made representation to the Finance
Minister on such issues. It is hoped that the Society’s representation to the
Hon’ble Finance Minister would be considered in right earnest and the tax
proposals will be modified before they are enacted into law.
