Govt widens scope of direct tax code to make compliance easier for taxpayers

The government on Wednesday widened the scope of a new direct tax code that is on the drawing board to make compliance easier for taxpayers, while transactions by businesses and individuals will be analysed more intensively using technology.

A panel drafting the tax code has now been given four more areas to work on, said a statement from the finance ministry. One of these is faceless assessment and scrutiny of income tax returns, which eliminates the possibility of the assessee and the tax official concerned ever getting to know one another. Anonymity in processing a taxpayer’s return aided by technology is aimed at eliminating the possibility of corruption.

The task force led by central board of direct taxes (CBDT) member Akhilesh Ranjan has also been assigned to incorporate in the tax code provisions for reducing litigation and reducing the time taken for deciding on appeals by the department’s officials and various courts, including high courts and the Supreme Court.

The new code will also have provisions for goods and services tax (GST) authorities, customs officials, and the financial intelligence unit to share information, said an order issued by the ministry. This will make sure that sales that get reported in the GST system cannot be hidden by the seller in his income tax returns. As GST is a value added tax system in which transactions between buyers and sellers have to be matched for tax rebate purposes, it is virtually impossible for transactions to remain outside the GST chain.

The ministry also asked the panel to work on cross-verification of transactions by the department’s IT systems.

The move to make income tax compliance easier by cutting red tape indicates that direct tax reform is high on the agenda of the Modi administration, which replaced a complex web of central and state indirect taxes with a national sales tax, the GST, in its previous term. The GST roll-out in 2017 has been one of the achievements of the Modi government but it has been disruptive on account of technology glitches and the backlash from small businesses and traders, a key support base of political parties, including the Bharatiya Janata Party (BJP).

However, GST has led to the generation of a gold mine of data about the businesses as it brought into the formal economy a large number of firms that are either part of a tax registry or have signed up for retirement savings schemes for their workers. Indirect tax reforms have led to the expansion of the direct tax base in many countries, said experts.

The government now wants the direct and indirect wings of taxation to work more closely with each other to check tax evasion.

The government also included chief economic adviser Krishnamurthy Subramanian and revenue officials Pragya Saksena and Ritvik Pandey in the panel.