Budget must strengthen tax dispute resolution schemes to instil confidence

The logjam of tax disputes is a critical issue that the Budget needs to address.

By Sameer Gupta and Giselle Barboza  

With the unveiling of the Union Budget on February 1, there is anticipation for transformative policies that align with the Government's stated objectives: simplification of the tax system, investment stimulation and the cultivation of an environment ripe for economic growth. The Budget is definitely an opportunity to advance the narrative of economic stability.

The Finance Minister, poised to present her 8th Budget, is well-versed in navigating the complexities arising from diverse demands.  These range across stakeholders, from the reduction in personal income tax rates to fuel consumption, strategic counter measures against low-cost imports, bolstering of domestic manufacturing, to streamlining of the GST framework.  While positive steps in this direction have been taken over the past years, there are expectations from this Budget which are discussed below.

Corporate reorganisations

The new regime's treatment of buybacks needs fine-tuning to avoid artificial taxation of capital receipts as dividend income, like buybacks from share premium or financed through new shares/ securities, as they do not distribute retained earnings.  Alignment is needed in holding period for capital assets, for example in slump sales from 36 to 24 months, and for unlisted shares in IPO Offer for Sale from two years to one year, aligning them to listed securities.

Rationalising Tax Deducted at Source (TDS) provisions

TDS provisions, with its 33 sections and varying rates, needs a relook which began in the last Budget.  A simplified structure with fewer categories and lower rates would not only ease the compliance burden for tax payers, but correspondingly reflect the impact of reduced corporate tax rates.

Bolstering Dispute Resolution schemes

The logjam of tax disputes is a critical issue that the Budget needs to address, particularly at the Commissioner of Income Tax (Appeals) level with over half a million cases pending and Rs 14.2 lakh crore at stake at this level itself.  Also, there are more than 350 cases pending resolution at the Board of Advance ruling and over 800 pending Advance pricing agreement cases.  Bolstering existing dispute resolution schemes to facilitate more disposals will help decongest the system and more importantly help instil confidence in taxpayers.

Policy Side Asks

The expectations from a fiscal policy side are continued prudent fiscal and debt management, increased public capital expenditure, and improvement in the ease of doing business in the country. These, along with fostering innovation and facilitating green financing, are the keystones for a sustainable economic future.

While work on the revision of the Income Tax Act is well underway, one will need to see whether these are implementable in some form immediately or part of a larger proposal to be enacted in future.  Until then, immediately addressing of the above-mentioned points will help ensure that the Indian tax system is not just compliant but also competitive. The Union Budget has the potential to pave the way for an economy that is robust, equitable, globally competitive and primed for growth.

(Sameer Gupta is National Tax Leader, EY India and Giselle Barboza is Tax Partner, EY India)

Views are personal and do not represent the stand of this publication.