Tax Policy in Trying Times

The Hindu     15th December 2020     Save    
QEP Pocket Notes

Context: COVID-19 pandemic has highlighted already existing deficiencies in the archaic Indian taxation system, for instance rising wealth of big companies while GDP is running in negative territory.

Indian taxation system

  • Recent Government’s interventions:
    • Equalisation levy: Non-resident e-commerce operators were brought within the scope of this levy by the Finance Act of 2020. Online sales of goods and services will be taxed at 2%.
    • New scheme of faceless assessments and faceless appeals.
  • Deficiencies and associated issues:
    • Rising inequalities during COVID-19:
      • Super rich became richer: GDP is contracting, but some stocks are surging to phenomenal heights
      • Unemployment and an increase in poverty levels along with the migrant crisis.
      • Lack of adequate fiscal stimulus: Merely 2% of the GDP in India, compared to Japan’s fiscal stimulus (21% of the GDP), Brazil’s (10%) and China’s (7%).
      • Rising corporate profits: at the expense of wages and small and medium enterprise profits.
      • Other gainers: Corporate houses, Internet service providers, laptop makers, scientists engaged in medical research, manufacturers of masks, and Personal Protective Equipment.
    • Tax avoidance: by global web companies has become acute because of digitalisation.
    • GST rate reduction: benefits not being transferred to the consumers by corporates.
  • Way forward:
    • Amend Digital taxation: in accordance with the UN Model Convention.
      • Need for India to act in sync with the Organisation for Economic Co-operation and Development.
    • Strict implementation of Anti-Profiteering Rules under GST law: wherever there is a reduction in the tax rate on any commodity or service.
    • Change dispute resolution mechanism: in line with faceless assessments and faceless appeals.
      • Settlement through mediation and conciliation or, if necessary, arbitration in connection with tax disputes between the tax-paying companies and the Central Board of Direct Taxes.
      • Avoiding retrospective taxation as happened in the Vodafone taxation dispute case.
    • Government should make report of the Akhilesh Ranjan Task Force (on “rewriting the Income Tax Act”) public for a more informed discussion.

Conclusion: Along with the above suggestions,archaic laws should be modernised and made compatible with international tax laws to make them more compatible and in sync with the changing times.

QEP Pocket Notes