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Business News/ Opinion / Tax terrorism: collecting taxes and then some more

Tax terrorism: collecting taxes and then some more

Many times, large unjustified tax demands are raised, followed up with aggressive recovery procedures

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

The recent dispute between certain officers of the Income Tax Department and the Revenue Secretary have laid bare some unhealthy practices followed by the tax department in order to meet its revenue collection targets. It has been reported that an incorrect tax demand was raised on a large public sector bank, which was collected in the month of March. The demand was cancelled in the month of April, and the tax refunded thereafter. Therefore, the shortfall in the revenue collection for the earlier year ending March was bridged by this method, pushing the problem forward to the subsequent year. It is reported that the Revenue Secretary took action against the officers concerned, by transferring them, as a means to discourage such practices. The tax officers were agitated by the Revenue Secretary’s action.

Such practices by tax officers are not new, and most tax practitioners and large companies (particularly public sector undertakings) are aware of them for the past many years. Many methods were being followed for this purpose. Large taxpayers or their representatives were approached, and requested to make larger advance tax payments than warranted in the month of March, with an assurance of speedy refunds subsequently. Demands were raised in March on taxpayers who were entitled to refunds, and when the taxpayer requested adjustment of the demands against the larger refunds due to him of earlier years, they were requested to pay the full demands by 31 March, with an assurance that the refunds would be issued in April. Often, these assurances of refunds were not met.

The practice of raising large unjustified tax demands followed up with aggressive recovery procedures, including coercive methods, were also resorted to in many cases. The issue of refunds in the months of January to March normally came to a standstill, lest they resulted in a shortfall in the net tax collection.

A recent practice, followed in the past couple of years, has been that where an assessment in the month of March is resulting in a large refund due to a taxpayer, the figure of interest payable by the taxpayer is adjusted (which can be done manually, though the computation of tax is otherwise computerised), so as to reduce the refund to nil. The absurdity is such that, at times, there is no interest chargeable at all, as evidenced by the return, as well as by the initial intimation processed under section 143(1).

Another method is of not giving credit for taxes deducted at source from the taxpayer, though such taxes reflect in the online tax statement (Form 26AS) of the taxpayer. The taxpayer has no alternative but to file an application for rectification of the order, and pray for an early rectification, for which he is then at the mercy of the tax officer and her assistants.

Such practices resulted in large funds of taxpayers being blocked in pending tax refunds. Funds that could have been put to productive use by businesses, were left lying with the government. There was no accountability in relation to timely issue of refunds, and little heed was paid to the adverse impact on taxpayers and their businesses. It was not that the higher authorities were not aware of such practices, but they turned a blind eye, as meeting revenue collection targets at any cost was the only aim of tax officers at various levels.

The Revenue Secretary deserves to be complimented on the bold measures taken to clamp down on such unhealthy practices. Various directions were issued in the past one year to ensure that taxpayers were not harassed. Directions were given to issue refunds in all cases where such refunds were pending (refunds were issued even in January this year), various time limits were laid down for disposal of rectification applications and giving effect to appeal orders, recoveries in cases where appeals were pending was limited to 15% of the demands reducing the incentive for high-pitched assessments, and more. Unfortunately, many of these directions have not yet been fully implemented at the ground level due to lack of effective monitoring.

The root cause of such unhealthy practices has been the practice of setting unrealistic revenue collection targets for tax officers in the Union Budgets. The Parthasarathy Shome Committee had noted a few such practices in its report, and recommended that unrealistic tax collection targets not be laid down. If the economy is growing at 6.5% or 7%, how can one expect tax collections to increase by 20%? The Committee had therefore recommended following international practices to link tax collection estimates to the revenue gap. Unfortunately, these recommendations have not yet been implemented, resulting in the continued use of such practices.

One hopes that in the forthcoming Budget, this practice of setting unrealistic tax collection targets would be scrapped, and replaced by a more realistic method of fixing targets. Tax officers also need to realise that they are accountable to the public, and that such old practices need to be discarded. The tag of “tax terrorism" was used in the context of such practices, which were being followed in the name of public interest, and which have given the tax department bad publicity. The realisation needs to dawn that harassment of the taxpaying public is certainly not in the public interest.

Gautam Nayak is a chartered accountant.

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Published: 03 Aug 2016, 07:23 PM IST
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