Pratik P Jain radical tax reform post-independence, is still stabilising, which is not unexpected given the magnitude of changes that it brought about.
The primary goal of ease of doing business is yet to be accomplished. The new tax regime requires technology infrastructure to manage the massive scale of compliances, adding to the woes of taxpayers. However, there are good reasons to be optimistic. The government has proposed to simplify GST-related compliance and reporting requirements.
The government should now focus on simplification of tax-related processes, stabilising the technology infrastructure and removing ambiguity about widely debated tax issues.
To achieve this, a proactive approach is required for expanding the tax base by including petroleum products, alcohol and immoveable property within the ambit of GST. The decision to keep these goods outside the GST net is incompatible with the principal idea behind the GST – to have a single tax on all goods and services resulting in free-flowing credit.
Having four rate structure i.e. 5 per cent, 12 per cent, 18 per cent and 28 per cent for goods and services though may have been a practical compulsion, it is not in consonance with the goal of having ‘one nation one tax’. So, the next step should be towards pruning the tax rates further by clubbing the rate of 12 per cent and 18 per cent to, say 15 or 16 per cent. The tax rate for luxury goods can also be revisited to bring them down to 20-22 per cent. Items like cameras, cement and paints, which are currently under the 28 per cent category, should be taxed at only 18 per cent.
It is also important that the structure is not made more complicated by introduction of new levies like sugar cess, which is currently being talked about.
There has to be more focus on tax administration. Strengthening the advance ruling mechanism, streamlining the process of issuance of notifications and greater integration between direct and indirect tax administration are aspects that need attention.
It’s now time to consolidate and let the regime stabilise, while continuing to explore structural changes. There is hope that GST 2.0, which is at the works currently, will be a much improved version compared to the first one.
The writer is partner and leader indirect tax at PwC
DTC: Make the tax office accountable for its actions
Despite all the implementation glitches, the introduction of GST was indeed a landmark reform in the field of indirect taxes. GST, together with demonetisation, has had an impact on the direct taxes. We have substantial funds flowing into the formal economy resulting in enhanced tax revenues and expansion of the taxpayer base, something which is critical to improve the abysmally low tax-GDP ratio.
As the government looks at improving India’s ranking in the World Bank’s Ease of Doing Business Index, it finds taxes as one of the key negatives pulling us down.
Tax-terrorism still continues to haunt taxpayers and needs to be addressed. The lack of trust between the taxpayer and the tax office continues to be a bottleneck. It is in this background that the setting up of a committee to write a new Direct Taxes Code (DTC) needs to be viewed.
Let’s look briefly as to what are the key issues which ail the direct taxes system. First and foremost is the target-driven approach of the tax office where collection targets, devoid of the actual income of the constituents, is the basis of tax assessments. This leads to high-pitched assessments and litigation.
Since the government works on cash system of accounting, this leads to holding back tax refunds through multiple and innovative means. The next is the uncertainty governing the implementation. Each tax officer interpretes the Act and the Tax Treaties individually, with precious little central direction, creating multiple (and conflcting) approaches and uncertainty. We then have the timeline that it takes to resolve disputes and the absence of a speedy resolution mechanism.
Advance Rulings take years to obtain, appeals take years to decide, and matters continue to be litigated at higher fora. Finally, we have a new-found aggression of the tax office to penalise and prosecute taxpayers for issues which involve technical interpretation of law.
As can be appreciated, most of these issues need to be addressed administratively and may not necessarily require a change of law. We need to ensure that the tax office is accountable for its actions.
And, we need a mechanism which enables speedy redressal and settlement of issues. This is the unfinished agenda on direct taxes.
The new Code, when enacted, will definately make the law simpler. That will help. What is needed more is a mindset change.
The writer is Chief Executive Officer, Dhruva Advisors