3rd March 2013
Dear FM Shri. P. Chidambaram,
First of all thanks for your listening while taking the comments on the budget from all. We all understand that over a period of years there are some ills which have accumulated. However instead of voicing in general public/ or on professional forums, the same would like to be presented to you. You maybe able to address some of them in this FA or later.
Am a CA in ethical and professional indirect tax practice for past 25 years. Have written a few books on Modvat [ 1996/97], Central Excise [ Last 14 years], Service tax [ 5 years], Excise & Service tax audit and Karnataka Vat law [ from 2005].
When we hear that in the international index we are one of the worst tax administered nations and ranked 180+ in 184 nations, it is hurting our pride. For the past years we have heard you as well as the former FM stating that tax reforms are to be taken up. We have heard that refunds to exporters of service would be hastened. However we find that on the ground level none of this happens. When the credibility of the FM himself is questions where is the credibility of the country?
Some specific realities on the ground as possible solutions have been set out hereunder:
1. In any system the policy makers, judiciary and the executive are to be independent and that indicates maturity of the nation. Unfortunately in India the executive makes the policies [ without even considering the views of professional bodies- except a few to prove their consideration], more of less these are passed by the parliament [ hardly any real discussion happens as the members may/ may not be aware of the nuances of the tax laws]. The judiciary interprets the law and at times we find the same is corrected retrospectively. In this budget we see that the powers of the Tribunal [ CESTAT] have been trimmed. When there are insufficient benches [ – do we have a shortage of professionals to man or only the will is missing?] why not have mutilple benches where there is accumulation and additional benches in Hyderabad, Coimbatore, Kanpur... etc to see that matters of dispute are cleared soon. There is an urgent need to provide for bifurcation b/n these three. Also in the law making process only the executive making laws – mainly targeted as revenue leakage or worng doings of a few and making the tax compliant suffer is unfair and this trend needs to be reversed.
2. As rightly observed the ST law has become quite complex and it would not be untrue to say that there maybe less than 100 officers + 500 consultants in the whole of India who understand this law to the extent necessary. The tax payers is normally clueless and cannot fathom this law as it is changing frequently and is no logical.
Solution:
This requires that substantial resources be laid out to first train the officers [ many of them give advice without reading/ understanding the law], second the tax payer at all levels and tier 3 cities also.
3. The system of disclaiming the understanding of the revenue is indeed depreciable as it is the height of unaccountability. No doubt that the tax payer cannot trust the officers. We need to have courage to say we will stand by what we say. Even if it means that some sharp practitioner would use/ misuse the same. In a democratic country like ours where we are taxing the uneducated and the unorganised who also can have tax liability we need to ensure that the genuine and innocent are neither harassed nor harmed.
4. The system of survey to get information or based on audit finding sending enquiry letters is indeed a good method of bring those out of the net inside. However the reality today is that 30- 50 % of the possible revenues do not accrue to the state but to some of the dishonest revenue officers. [ It may shock you to know that 80% of the officers in CE/ ST dept especially in the lower rung are corrupt. Of course the 20% honest are keeping our country going.
Some possible solution:
a. All survey notices to be numbered sequentially entered in the system and tracked electronically. Escalated when delayed and regularly monitored and reported on. All notices to be sent under RPAD and not ordinary letter after entry in the dispatch register. [ practices of back dating letter, mentioning earlier non existent letter reminder have been seen] All resolution with or without liability to be confirmed by an independent officer. Maybe the services of independent professionals for the same may also be examined.
b. The VCES may consider only no applicability for investigations and SCN issued rather than any enquiry as even routine letters would disentitle the tax payer desirous of coming under this scheme. This could be applied for all those who have not collected taxes. For those who have collected and not paid and not disclosed inspite of some letter there should be no respite. It may also be considered whether for the tax payer who has not collected the period could be reduced to 18 months as that would practicable be payable. Otherwise a tax payer may have to pay 50% of the turnover as ST which may well nigh be impossible forcing him to continue to evade.
c. The information of officers who are actively involved in assisting the evaders to be outside the net may have to be done by method of spying or sting operations[ Even in the arthashatra this was recommended] Both the officers and the unscrupulous evader should be shown no mercy.
d. We observe that in many investigations the officers provide tax planning assistance in the course of the investigation and substantial leakage takes place through thisd method. Many the same can be audited post facto by independent agencies. [ In fact the AG would recover at least 5 times as much from this exercise than what t is doing today]
e. Many more maybe though of.
5. Internal audit and AG audit has also become a dreaded time for the tax compliant. The main evaders are outside and they are not subjected to the audit only those who are in the system and paying are!!! Is there a need to see that the tax compliant are honoured. Maybe an independent audit like Tax audit maybe mandated. Would also automatically lead to some level of minimum compliance.
6. In Indirect taxes the %age of frivolous cases as on date maybe exceeding 70+ %. The success rate of the revenue is presently at 15% or so. Arming the executive [ which consists of presently about 80% corrupt officers mostly in the lower rungs] with arrest powers and powers to attach accounts would lead to widespread misuse, harassment of the tax compliant. Of course it will put the fear of god into the evaders no doubt. But how many times it would be used on both sectors needs to be examined.
Even today without such powers at least 30-40% cases are being adjusted by the executive and the law evaders feel that they are being smart. The tax compliant bear the burden of wrong doings of the tax evaders.
Please bring accountability which was there in the earlier regime partially in a big way for the officers. Tax reforms does not mere mean taxmans empowerment to augment revenue.
How much training is done for the officers- do they know the law- is there any examination at least once in a few years -
7. Have the suggestion of the various independent professional institutes which are regularly provided for making law simple, fair, transparent being examined at all? I doubt it. In this communication the ICAI recommendation [ more than 100 +] do not appears to have been considered at all. Is it not a mockery saying that we take inputs from the trade industry and professionals when only the aspects which lead to augmenting revenue normally only considered. It is true that a couple of issues raised are addressed but it appears that that is only to show that something has been done.
8. My sincere view is that the FM is not being advised in a balanced manner and executive keeps the threat of non collection of revenue as a tool. Maybe in the policy making itself if views of the professionals are built in. The revenue knows who are the sincerely and knowledgeable professionals in this country.
9. There are many more issues but suffice for now.
I maybe wrong or not totally accurate/ biased in some of my view above. Where you concur hope you would take appropriate action. However I can safely say that I consider myself a good citizen of this great country and wish to contribute to its development by making tax laws simple, fair and transparent.
Am also committed to be available for assisting if called on without any professional remuneration.
CAclubindia
