The Union government is looking to raise a significant amount of revenue through its Vivaad Se Vishwas scheme, announced in the Budget. Union Finance Minister Nirmala Sitharaman has said the scheme will help people save time and money spent on such cases. There are over 400,000 direct tax cases with about Rs 9.3 trillion locked at different levels. The scheme will give a waiver on interest, penalty, and prosecution if the taxpayer is willing to pay by the end of the current fiscal year. The taxpayer will have the option of paying after March 31 but before June 30 with a penalty. On the face of it, the government can perhaps not be faulted for trying to reduce litigation and raising resources at a time when it is likely to fall short of revenue targets by a significant margin.
But the way it intends to implement the scheme is worrying. As reported by this newspaper, the Central Board of Direct Taxes (CBDT) has decided to link annual appraisals of field officers with their performance in terms of collection under the scheme. An office memorandum from the CBDT also said collection outcomes would play a bigger role in the future postings of field officers. Soon after the dispute settlement scheme was announced, the department asked the officers to work on holidays/Saturdays so that when the scheme was formally launched they got a head start on the collection front. This is a recipe for harassing taxpayers.
The way the government is approaching the issue is flawed. It is important to understand why there are so many tax disputes in the first place. The government first sets overly ambitious targets for revenue mobilisation, forcing the tax department to raise questionable tax demands that are contested by taxpayers, resulting in litigation. The new performance assessment target will obviously lead to tax officials doing everything in their power to force taxpayers to pay the disputed amount. Many assessees are reported to be getting repeated calls from the tax department. What is worse is that even a mild success of the scheme would incentivise the government to do more of the same — raise unrealistic demands, increase litigation, and then offer settlement. This will inevitably result in higher cost and affect the ease of doing business. Further, this will go against the stated objective of the government to end “tax terrorism”.
To be sure, the problem of litigation can be solved by addressing the root cause. The government needs to move towards responsible budgeting. It cannot sustainably pursue the current level of expenditure with the given sources of revenue. Overly optimistic revenue projections not only result in bothering taxpayers but also induces significant uncertainty in government expenditure. Government departments are not certain if they will get to spend the money allocated in the beginning of the fiscal year. Besides, the government needs to work on speedily resolving tax disputes. It is possible that in a large economy like India — with complex tax laws — there will be disputes. Therefore, it is important to put in systems that will resolve these disputes in a time-bound manner. One reason why India is considered a difficult destination for private investment is the hostile relationship between the tax department and the taxpayers. Perverse performance assessments of tax officials will only add to the problem.
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