Budget 2019: Ease of doing business vs tax collection; to be, or not to be

Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20, ease of doing business

Union Budget 2019 India: Aggressive tax collections directly impact the revival of economy and, therefore, a well-balanced approach is required to prevent unintended consequences.

By SR Patnaik, Thangadurai VP

Union Budget 2019 India: The oft-quoted phrase of Shakespeare’s Hamlet ~ to be, or not to be ~ would be apt to indicate the expectations on the first Budget of NDA 2.0. Would it focus on reviving the sluggish economy by incentivizing business sectors or would it concentrate on improving the falling tax collections? This apprehension arises in the backdrop of the recent alarm raised by the Central Board of Direct Taxes (“CBDT”) wherein it expressed its disappointment since the tax collections have fallen 15% short of the target. Aggressive tax collections directly impact the revival of economy and, therefore, a well-balanced approach is required to prevent unintended consequences.

The decrease in tax collections could be attributable to a number of factors and not all of them could be regarded as unnecessary and requires rectification; for instance, CBDT’s directions to stay outstanding tax demand by seeking 15-20% to be deposited if it is challenged is a welcome move. Similarly, the move to withdraw cases by the income tax department which are below the prescribed limit is also a step in the right direction. As per the CBDT, this would reduce 41% of the pending litigations filed by the tax authorities before various appellate fora.

These measures, though might have resulted in reduction of tax collections, were necessary to provide non-adversarial tax regime and to promote the government’s motto of ease of doing business in India. However, at the same time, some of the other measures taken by the tax authorities in the past few months seems to indicate that the Government is more concerned about tax collections than to ease the doing of business and to provide tax certainty.

For instance, the CBDT had set up a committee last February to examine whether the ITAT, the second appellate forum, has passed perverse/irregular orders while deciding the matters in favor of the tax payers. It is a known secret that the orders passed by the tax authorities are generally biased and pro-revenue since the officers have their own targets and are burdened with a lot of unnecessary and unproductive work. The tax payers are aware that they could expect a fair order from the ITAT since they are independent and are not required to report to the Government administratively. Thus, it is an absolutely ill-conceived attempt to examine the orders passed by the ITAT, especially when majority of the orders passed by the ITAT have been upheld by the various High Courts and the Supreme Court.

Similarly, there was also an attempt to incentivize tax officers who pass pro-revenue orders by promising them a posting of their choice or providing them promotion as such practices would invariably result in the tax authorities trying to take pro-revenue positions and thereby compromising with the quality of orders.

It is important to raise the quality of the orders passed by the tax authorities since below par orders results in significant wastage of management bandwidth and judicial time and does not augment tax collections. There are many instances wherein the tax payers succeeded before the higher authorities on jurisdictional grounds, despite having a weak case on merits, because of either judicial overreach or over enthusiasm by the tax authorities.

It would be a welcome move from NDA 2.0 if the unnecessary pressure exerted on the tax authorities to increase the tax collections is reduced and the approach of the tax department is slightly amended in order to enable the officers to pass and efficient orders. This could be done by incentivizing the officers who passes high-quality orders on merits and similarly holding officers accountable for passing sub-standard orders. These steps would not only improve the credibility of department in the minds of general public, but would also pave way for a non-adversarial tax regime without unnecessarily compromising on the ease of doing business.