A falling graph in the contribution that direct taxes make to India’s total collections has prompted the government to work on simplifying rules that govern such taxation and a draft bill in this regard may be ready by as early as the first half of next year.
India’s direct tax collections for the year ended March, 2017 are at their lowest levels since 2010, with around 63 per cent of the country’s annual budgeted revenue locked in litigation for the complex maze of tax rules and their varying interpretations.
The central government led by Prime Minister Narendra Modi now wants an overhaul of these archaic rules that date back to 1961 to ensure that tax compliance is simplified and dispute redressal quicker.
A Bloomberg report citing people familiar with the matter said that a new bill in this regard will probably be ready by early 2018 for stakeholder comments. Among the many changes that the bill could propose include eliminating the requirement for taxpayers to submit multiple returns and quicker options of redress in case of a dispute.
About Rs 10 lakh crore is the amount said to be currently locked in litigation due to tax rules. Complex rules for compliance and loopholes have kept about 99 per cent of the population outside the income tax net.
This will not be India’s first shot at revamping tax laws to come up with a simple tax code. However, a slew of reasons ensured that efforts in this direction lead to nowhere.
However, the new law in the making could see much-needed changes. As part of the measures likely to be proposed as part of this exercise, the government may obliviate the practice where tax officials show up at your door for enquiries and replace it with a standard practice of having them emailed. The law in the making could also enable tax payers to file disputes or appeals online instead of repeated rounds to the government, the Bloomberg report said citing its sources.
Clarity will also be provided on penalties for failing to furnish tax returns, comply with notices or concealment of income, it said.
The compliance burden as far as processes are concerned could also be trimmed. Global funds who pay withholding tax on investments should be able to get by with just one payment receipt, rather than having to file a separate tax return. Rules for transactions involving related entities --- covered under the so-called transfer pricing mechanism that has embroiled companies including Cairn Energy Plc and Vodafone Group Plc in lengthy disputes -- may be simplified too, the report added.
The government is also considering reducing the number of tranches for advance tax payments from the current practice of companies paying them out in four annual installments.
Data shows that India is among the worst countries for a tax payer. As per World Bank data, India ranks at 172 out of 190 countries when it comes to paying taxes, with hours per year spent on compliance clocking 241 as compared to 33.9 in East Asia and 40.9 in OECD high income countries.
The situation is no better for corporate with the percentage of profit going into taxes going as high as 60.6 per cent as compared to 33.9 per cent in East Asia and 40.9 per cent in OECD countries.