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Trending: Call for Papers Volume 3 | Issue 2: International Journal of Advanced Legal Research [ISSN: 2582-7340]

A Manifesto On Tax Reforms

INTRODUCTION

Taxation, the system of the imposition of compulsory levies on individuals or entitles by governments, is the strength of a country’s economy. The system of taxation is not at all a newly developed concept. Rather it is a concept similar to the system of taxation in vogue about 2300 years ago. 

Its origin can be traced in India back from the period of Manu Smriti and Arthasastra, in which the tax system was based on the theory of maximum social welfare. Even the concept of taxation has its mention in the Hindu holy book- “Shrimad Bhagawatam”. However, this term ‘Tax’ came into the legal sphere in the year 1860, when Sir James Wilson, the then Finance Minister of British India, introduced it in order to use it to meet the losses sustained by the government on the event of Military Mutiny of 1857.

WHAT IS TAX?

As held by the Supreme Court, “A tax is undoubtedly in nature of compulsory exaction of money by public authority for a public purpose”.[i] In simple words, ‘Tax’ refers to the mandatory fee or financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure.

Taxes are broadly categorized into two types (on the basis of the manner of payment to the taxation authority):
I. Direct Tax – It is the kind of tax, imposed on corporate units and individual people, that can’t be shifted by the taxpayers to someone else.Example: Wealth Tax, Income Tax, Gift Tax, etc.
II. Indirect Tax- Taxes that are indirectly imposed on the public through goods and services are called indirect taxes. Example-

GRADUAL DEVELOPMENT IN SPHERE OF TAXATION:

After the introduction of the act for levying income tax in the country by James Wilson in 1860, several amendments were made to it from time to time so as to develop this act into a successful one to strengthen the economic system of the country. The process of modifying the act into a better one initiated from the year 1866 with the passing of a separate Income Tax Act. This act divided the ‘Income’ of a person into four scheduled taxes. But this act was repealed in 1918 with the passing of a new Income Tax Act. In 1922, however, another Income Tax Act was introduced which for the very 1st time, allotted specific nomenclature to various Income tax authorities[ii], thus making the enactment of the act a historic one. This enactment replaced the act of 1918 and remained in force until the year 1961. In between this period of 1918-1961, this Income Tax Authority had achieved huge success by becoming a basic authority for levying a tax on selected services. But the true evolution of the tax system started in independent India when in 1961, an Income Tax Act came into play, introduced only on consultation with the Ministry of Law, and became applicable to all over India, including Jammu And Kashmir. This act came into force on 1st April 1962 and hasn’t been replaced yet. Only amendments are being brought to the act on a regular basis so as to make the act effective and to make it well capable to meet the expectation of people in the changing world.

No doubt these acts have attempted to the utmost level to bring revolutionary changes in the arena of taxation. But since the year 1991, India has witnessed some very significant changes in its tax system that were initiated in accordance with W.T.O[iii]commitmentsand liberal financial policies of the country, and this came to be known as Tax Reform. A landmark step was taken by this tax reform on 1st April 2005[iv], at the state level, i.e.VAT System, but this system resulted in a lot of confusion and uncertainty. Even after working constantly in this field, India wasn’t able to achieve the peak of success and satisfaction. From 2014 onwards, the Indian government has been making concentrated efforts to reform the cobweb of taxes that always imposed constraints on the growth of citizens of the country, and ultimately on the country’s growth. This constant effort has finally been paid off in 2020 under the Ministry of Modi Government which has successfully introduced a public-friendly and people-centric tax system, based on a fundamental character, completely different from the one developed during the pre-independence times. This seamless, painless, and faceless taxation system is known as- “Transparent taxation: Honoring them Honest”.

TRANSPARENT TAXATION

This system has come into effect on August 13th, 2020, with the sole purpose of benefitting the sincere taxpayers because P.M Modi, had been observant towards the fact that- A country’s development is in the hands of its citizens, who are the taxpayers of the country. The easier life of the honest taxpayers, more they will be interested in the honest and timely payment of the tax, thus helping the country to develop and leap forward. To wipe away the evil recognition assigned to India’s tax administration of being over-zealous in its pursuit of meeting the budgeted tax collection targets tax-payers, the Modi government has finally unveiled this faceless tax assessment and appeals and the implementation of a taxpayer’s charter in order to reduce the scope of corruption and create a transparent tax environment. These faceless assessments and taxpayer’s charters are the next phases of direct tax reforms which aim at easy compliance and giving fair, courteous, and reasonable treatment to the honest taxpayers.

REASONS BEHIND DEVELOPMENT OF SUCH SYSTEM

P.M Modi indicates the following factors responsible for the implementation of such an act:-
i. Policy-driven governance
ii. Belief in people’s honesty
iii. The case of advanced technology
iv. Efficiency in bureaucracy

COMPONENTS OF THIS TAXATION SYSTEM

A. FACELESS ASSESSMENT

· As per the system that was prevalent till now, a taxpayer always had to get in touch with the tax-officials for getting his tax assessment done which often resulted in coercion and rent-seeking. With the introduction of the faceless assessment, this problem has been solved due to the no face-to-face interaction between the Income Tax department concerned with the collection of tax and the taxpayers.
· The move is expected to ease the compliance burden for assesses and reward the “honest taxpayer” who has a vital role in nation-building.
· Under this system, the scrutiny of returns of a taxpayer will be done by a tax officer selected at random through the use of technologies like artificial intelligence and analytics and not necessarily from the same jurisdiction.
· This assessment seeks to eliminate corrupt practices.
· It would be very beneficial in enhancing confidence among the taxpayers on fairness and fearlessness by turning faceless.

B. FACELESS APPEAL

· This system came into force on 25th September 2020, with a motive to put an end to the fear, faced by people in the old system in appealing against the Income Tax department’s decision due to the chances of retaliating action. As per this system, all the appeals now will be allotted to any Income tax officials, randomly in the country whose identity would be anonymous. There is no need for the physical representation of the payer.
· There have been some exceptions to this system, namely, cases related to serious fraud, tax evasion of big amounts, cases of Benami properties, black money, and other sensitive matters.

C. TAXPAYER’S CHARTER

In 2014, a Citizen’s charter was prepared by the Income Tax department which provided the vision and mission of the tax system. However, later on, the Income Tax Department, since felt the need of amending the Income Tax Act for improving the efficiency of a delivery system of the Income Tax Department, proposed the amendment to mandate the CBPT for adopting a Tax payer’s charter. So, Nirmala Sitaraman[v] put forward the Income Tax Charter in the Union Budget for 2020-21, containing a furthered vision of Citizen’s Charter. This was accepted as a welcome step.
It enumerates not only expectations of the government from the honest Taxpayers, but also their rights and duties.

SIGNIFICANCE OF THIS SYSTEM

Our country is mostly a society of middle-class people and it is they who give genuine reactions regarding the success and failure rate of any new amendment, initiative, etc. Most of the honest taxpayers also belong to this group only. It is always the middle-class taxpayers who suffering the time of investigation and appeal regarding payment of tax. Since it takes quite a long time to settle the tax resolution cases, in the meantime, it drains out the taxpayer’s money. For rich and affluent taxpayers, payment of such huge amounts of money doesn’t mean much, but in the case of middle-class people, it means the loss of their whole savings. Wealthy people, in order to avoid the arising of such a situation, hire highly paid tax-consultants, which is quite impossible for the middle-class people.

Modi government has rightly pointed out this problem and has molded the new system in such a manner that the honest middle-class people will also be benefitted. It has developed the faceless tax platform, which ensures no direct interventions of the officers, thus encouraging the middle-class taxpayers to be fearless and for handling their own tax-related issues without any hassle.

This system is also in conformity with the ongoing pandemic. Now people, without the fear of being affected by the on-going Covid-19 to pay tax, can easily make the payment by sitting in their respective houses. Modi government has taken care of the social distancing norms.

CONCLUSION

There is no doubt that P.M Modi’s initiative for banking the unbanked, securing the unsecured, funding the unfunded, and honoring the honest is a strong push towards the altering of a political economy of taxation in India. But the success of this system will solely depend upon its implementation, legal status, and enforceability. One-sided effort never results in something fruitful. So now it is the duty of the citizens of the country to cooperate with the government and respond to the accelerating digitalization of the tax administration and build an Atma Nirbhar Bharat.

[i]Mahant Sri Jagannath Ramanuj Das v. State of Orissa : 1954 AIR 400.
[ii]Income Tax Department, Government of India, http://www.incometaxindia.gov.in/Pages/about-us/history-of-directtaxation.aspx
[iii]World Trade Organization, 1995.
[iv]M. Govinda Rao, Tax system reform in India: Achievements and challenges ahead, Journal of Asian Economics, Elsevier, vol. 16(6), 993-1011(2005).
[v]Finance Minister of India.
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Author: Srestha Das

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