CA Sandeep Kanoi
Before going through the content of the article let us understand what the word Tax Terrorism means. The term ‘tax terrorism’ was first used by the current Prime Minister Narendra Modi to describe the adversarial approach adopted by tax authorities under Congress lead UPA.
“Tax Terrorism” in simple words means a situation in which Tax Authority can use their powers to impose unreasonable tax on an honest taxpayer. This may be either in the form of unjust and inequitable tax laws or by enforcing the tax law on the general public in a harsh manner, which generally happens when the taxman views every transaction with suspicion.
Tax Terrorism can also be defined as aggressive use of legal and tax machinery by the Government to extract maximum tax revenue from taxpayer, which creates great inconvenience and harassment to the tax payers. Many aggressive steps of government like retrospective taxation, unnecessary litigation, seeding out demand notices, higher interest rates on delayed tax payments, unrealistic penalties e.g.- Penalties under Sec. 270A and 234E and delay in refunds etc. form part of tax terrorism.
For the current BJP government when it contested Lok Sabha Elections in 2014, Tax Terrorism was one of the key issues and the Party had promised that they will make all efforts to end the Tax Terrorism prevalent at that time under UPA Government. An extract of the BJP Election Manifesto for 2014 Lok Sabha Elections is as follows:-
“Taxation”
UPA Government has unleashed ‘Tax terrorism’ and ‘uncertainty’, which not only creates anxiety amongst the business class and negatively impacts the investment climate, but also dents the image of the country. BJP realizes the importance of having a Tax Policy Roadmap, so that people are aware of the future and plan accordingly. We will:
- provide a non adversarial and conducive tax environment
- rationalize and simplify the tax regime
- overhaul the dispute resolution mechanisms
- bring on board all State governments in adopting GST, addressing all their concerns
- provide tax incentives for investments in research and development, geared towards indigenization of technology and innovation”
BJP used the word Tax Terrorism as UPA Government tried to impose various taxes by making a statute applicable from Retrospective effect. But if we analyse the changes made by this NDA Government i.e. BJP lead government since coming into power in the year 2014, we will find that BJP is not far behind or in fact, may be ahead of the earlier government in one or other way.
Drawback of Tax Terrorism
1. Lower FDI- Tax Terrorism creates an atmosphere of uncertainty and keep the FIIs away from entering the Indian Market.
2. Negative impact on ease of doing Business- Tax Terrorism leads to lower ease of doing business.
3. Lower confidence of Business Community in India’s business environment, leading to lower investments.
4. All the Government programmes like Start up India, Make in India etc. will be hit negatively.
Measures needed to reduce Tax disputes / Tax Terrorism
- Improving tax administration and fixing the loopholes in the existing laws so that tax avoidance can be curbed.
- Implement tax reforms including income declaration, automation of assessment, etc.
- Improved tax dispute resolutions so that the investor confidence can be boosted.
- Bring back black money on priority by taking strict measures against Swiss Banks as done by USA
- Keep a Strict No for Retrospective Amendments
- Reforms in Litigation Management by creating Machinery to reduce domestic & international tax litigations.
- Bring certainty and uniform approach on important taxation issues affecting industry. Capacity-building in tax tribunals and setting up of the National Tax Tribunal to replace high courts should be revived with the implementation of the National Tax Tribunal Act, 2005.
- Tax payer should be considered as Customer by Income-tax department.
- Assessing officer should be responsible for administration of tax law and not for collection and he should be given any collection Target and collection and recovery work should be given to a department which is Independent of Assessing officer.
- Government should not use any coercive measures to fulfil any targets it has set for itself.
- Grant automatic stay till disposal of first appeal to taxpayer against any Tax Demand.
- Fix limit for CIT (A) to dispose of the appeals and till passing of CIT(A) order assesse should not be treated as “ Assesse in default”.
- GAAR may be deferred for another 2 years as Government need to build confidence mechanism and to train its officers for its proper for implementation
- Increase tax exemption limit to Rs.5 lacs as promised by BJP Government during 2014 Loksabha Elections and maximum rate of 30% may be introduced beyond income of Rs.25 lacs.
- Bring accountability for tax officers, commissioners and all involved in making assessments, deciding appeals, conducting surveys and searches.
- Simplify Tax Returns instead of complicating them in the name of disclosures and reduce compliance burden on Taxpayers
Why we think that Tax Terrorism is at its Peak under the BJP regime (Recent Past)?
Forced disclosure under Income Disclosure Scheme (IDS 2016) – As we all know the IDS 2016 has not got the response as expected by Government and in order to make the scheme successful government started giving targets to its officers and under the pressure of such targets, taxmen started threatening Taxpayers with Survey or Raids. These threats left the taxpayer with no option but to disclose certain sum under IDS 2016. Under such an environment, many taxpayers who were not having any black-money were also forced to declare Income under IDS 2016. Can’t we call such Blackmailing as Tax Terrorism? Income disclosure schemes should have worked on incentives and not on intimidation.
Every other day Threats by Taxmen, Revenue Secretary and by other Government Machinery- For the first time in my life I have seen a Government who instead of encouraging tax compliance positively choose to threaten taxpayers by Penal consequences on daily basis.
Confusing / Threatening / Contradictory Statements by Taxmen, Revenue Secretary and by other Government Machinery-
Here we are not dealing with harsh, unpopular and non tax payer friendly measures taken by the BJP Government since it has come to power in the year 2014. We are only discussing the things which have happened post 08.11.2016 i.e. the day honourable Prime Minister Shri Narendra Modi announced his Demonetisation scheme by which he has withdrawn legal Tender of Rs. 500 and Rs. 1000 notes.
As we all know social media has assumed greater significance in recent past and so has the digital and print media.
What the Government has done recently is that it has demonetised Bank Notes of Rs. 500 and Rs. 1000 to eradicate the black money out of the system, but without taking into account the way people may try to convert their Black Money into white post demonetisation.
One of such measures used by the black-money holders was that of depositing Cash into the bank account(s) of others in order to convert their black Money into white. The Finance Minister, Revenue Secretary etc. first said that any amount deposited up to Rs. 2.50 Lakh will be Tax Exempt and no enquiries will be made for those depositing cash up to such amount considering the same as below the tax exemption limit.
But after few days of such announcement, the Government has come with a Press Release saying that even if the deposit is less than 2.50 Lakh the same can be subjected to income tax and penalty if it is established that the amount deposited in the account was not of the account holder but of somebody else. Also the person who allows his or her bank account to be misused for this purpose can be prosecuted under the Income Tax Act.
Here, the intention of the Government seems to be correct. But by issuing such threatening press releases, it has created an atmosphere of fear amongst the depositors even if they have made the deposit out of their own savings. In fact many small taxpayers/ Common Men are scared to deposit any amounts in their account as they are scared to deposit due to fear of unnecessary harassment by Income Tax officers, post deposit of amount in their bank account and were left at mercy of brokers who are converting Cash into Gold, Foreign Currency and other valuable for a hefty commission ranging up to 50% total amount to be converted.
The Government has further failed to properly clarify that Cash Deposit (of whatever amount), if the same is from explained sources and has not been earned by tax evasion can be deposited without any limit. No action will be taken by the Assessing Officer if the assesse explains the same in proper manner. Government further failed to issue a guideline on what will be deemed as properly explained source of Cash Deposit.
To further add insult to injury, the Government has vide Notification No. 105/2016-Income Tax, given powers to Income Tax Officer (ITO) to select any case for scrutiny assessment and such unchecked power will certainly increase corruption and harassment to assessee.
We have already seen, an Income Tax officer issuing notice to an assessee from Siliguri for a mere deposit of Rs. 4.5 Lakh in his current account. Accordingly, we can imagine the way things will unfold in coming days.
On August 9 2016 during Debate on GST bill in Rajya Sabha PM Narendra Modi said that GST Bill is a crucial step for putting an end to “tax terrorism” as new indirect taxation regime will subsume seven to 13 taxes.
It seems to be the beginning of Tax Terrorism and Inspector Rule under BJP regime unless the Government takes remedial measures and reinstalls the confidence back in the minds of people.
I Would like to invite comment of our readers on the above issue.
