Last week, the PM unveiled the Taxpayer Charter with a twin-fold document containing 14-point obligations of the Revenue and 6-point duties of the taxpayer. While the analysis of each is yet to be translated into actionable goals, the announcement is an outcome of amendment in Finance Act of 2020. The building blocks for statutory adoption of taxpayer Charter is predicated on nation building through progressive tax policy and honouring the honest taxpayers.
The institutional framework for protection of taxpayer rights can be traced to 1998 Citizen’s Charter, a first step towards implementation of Sevottam (Service Excellence – a combination of two Hindi words: Seva and Uttam). With continuous improvements the Charter was revised multiple times. The Kelkar Task Force in 2002 suggested methods to instil accountability in functioning of the tax department by suggesting an ombudsman reporting to the Parliament. However, the Ombudsman framework introduced by way of administrative guidance with no statutory basis proved to be an ineffective body without statutory recognition. The 2014 Tax Administration Reform Commission (TARC), advocating thrust for Taxpayer services, emphasized the need to revisit the Citizen’s Charter with focus on taxpayer’s concerns, needs and priorities. India’s efforts thus far, compared to jurisdictions which have adopted such tax payer services, lies in distinction between a service charter, which outlines level of services that taxpayers may expect from a Charter or Bill of rights, being envisioned in 2020.
The adoption of Charter is expected to signify a minimum standard of protection outlining the taxpayer rights and obligations. Non-statute driven Citizen Charter, with remote degree of accountability on service standards, has proven to be ineffective in practice, besides leading to taxpayers’ woes and at times its redressal via judicial mechanism. Though, tax administrative reforms and intensive use of technology in the past few years has come a long way in improving taxpayer experiences, India’s tax policy enforcement stands at a distance from global standards. India has come a long way on tax return filing requirements, automation of withholding tax, regular assessments/ issuance of refunds, it has lot to work upon with regards to privacy and confidentiality, non-coercive measures for tax collection, cross-border procedures, administrative procedures and guidance etc. That situation is now expected to change with implementation of a Charter, which seems more like a Bill of rights.
The new outlook will necessitate convention, attitudinal and organization structural change including allocation of greater resources to taxpayer service than to enforcement for implementing the Charter in its spirit. Other jurisdictions which have adopted such Charter have stressed upon multiplicity of accompanying factors such as constitutional framework, separation of office responsible for Charter implementation, obligation to scrutinize its functioning, grievance redressal and intervention etc. India will have to adopt a structured approach for such change at the design and implementation stage. Global practices on implementation are varied, though, in general such charter and bill of rights document contain path breaking standards including constitutional limits on retrospective tax legislation (a constraint for India), public consultation and engagement in shaping of tax policy and law (a practise that India follows, though not consistently), binding rulings which restrict Revenue from appealing Advance Rulings and non-binding administrative guidance.
Recommendation: India’s Charter can contain:
- Presume Honesty
The PM announcement has made a clarion call to treat every taxpayer as honest unless there is reason to believe otherwise. Starting from an independent accountant’s/auditors report for complying with filing requirements, on plethora of issues, the taxpayer and/or his accountant signs a ‘verification’ declaring that the information is true and correct to the best of his/her knowledge. There are sufficient penal and criminal consequences for non-compliance. With faceless assessments, to remove any doubts, the taxpayer may make submissions on an affidavit to reaffirm particularly since the charter specifically expects taxpayers to honestly disclose full information and fulfil its compliance obligations. With faceless assessments, maxims such as ne bis in idem ( prohibition on double jeopardy), audi alteram partem ( right to be heard before an order is issued) and nemo tenetur se deterge (principle against self-incrimination) should be enshrined in the Charter.
- Reduce cost of compliance
With advent of artificial intelligence and MoU’s between Ministry of Finance and other regulatory agencies, the revenue is enriched with abundance of data, which can be used as a pre-filled return, obviating need to seek assistance of CAs or a Tax Return Preparers. Such pre-filled data should capture capital gains and sources of income where tax has been withheld. This will also test efficacy of sources and avenues of government AI to track data emphasising its relevance to taxpayers, who are otherwise unaware of usage of the data. With faceless assessment and appeals, centralised procedure for group entities/families including trusts will reduce taxpayer dependence on multiple advisors and enhance Revenues attempt for application of such data, thereby lending credibility to the faceless assessment/appeals process and reduce the cost of compliance. A start can be made by revisiting large tax payer unit and extended to small and medium enterprises.
- Assistance to Taxpayers
Every taxpayer should be entitled to timely online assistance which should be mandatorily provided via Service Directorates, in every Regional Directorate of Taxes. The focus should be individual tax payers, firms, small and micro enterprises who face difficulties in meeting compliance obligations, including senior citizens, those with disabilities and those located in remote areas who are unable to or unwilling to use electronic forms of communication. There should be non-binding administrative guidance for all businesses where the administration is seen as correctly applying the law and the taxpayer can bona fide rely on such guidance.
- Redressal of Grievances
It is a key to success of any Charter. When a taxpayer raises a grievance, the Charter Cell should ensure that it immediately acts on it. A general obligation to scrutinise and intervene in appropriate cases should form the backbone. This is where independence of the body comes into play. The broadest experience of retired CBDT members could be sought to disprove any form of biased approach. Officials, if found guilty, should be mandated to comply with an award of token compensation along with an apology to the taxpayer as observed in Australia. The Cell should report its findings to the Revenue Secretary and the CBDT Chairman for 360-degree evaluation of the concerned official.
- Enforcing tax collection due as per the law
Approach of the tax Revenue to multiply litigation by making high pitched assessments and seeking to coercively recover tax demands has come under criticism. In several instances, such assessments have not sustained scrutiny of higher appellate forum. Despite statistics, officials continue to raise heavy demands, initiating coercive measures by issuing garnishee orders, including attaching bank accounts. Such practice should be exercised in exceptional situations with adoption of the charter, as taxpayer rights are most violated in such situations.
- Confidentiality and Privacy
Provide a specific legal guarantee for confidentiality, with sanctions for officials who make unauthorised disclosures. In situations of breach or leaks to media, it should be thoroughly investigated and making it as an offence. Rules governing tax inspections, particularly on surveys and search operations should be aimed at protecting citizens’ right to privacy. If ‘naming and shaming’ is employed, adequate safeguards such as judicial authorizations should be resorted to and officials in charge of investigations in particular should be held accountable for wilful or negligent breach of confidentiality.
- Mechanism for Accountability
To ensure accountability, the Charter should provide for an annual report which assesses the performance of the Revenue and Charter cells along with list of actions. Periodic surveys to seek feedback including taxpayer experiences and suggestions to enhance accountability and augment compliance should be a norm.
The 2020 Charter is a fresh start and an opportunity to build trust and enhance relationship between the taxpayer and the Revenue. It certainly has potential to offer practical protection for taxpayers in ensuring that the tax law is predictable, necessary and that its workability does not impose an undue burden; instead it is integral to nation building, particularly in a large nation with few taxpayers. Simultaneously, it acts as a deterrent for errant taxpayers. Obligations of the tax administration to apply the law and legitimate expectations of taxpayers that rely upon such Charter is certainly a difficult balance in our nation, particularly given that the boundaries of honesty can be blurred. The Charter affords an opportunity to decipher that divide.
By Mukesh Butani & Shreyash Shah.
Butani is managing partner and Shah is a managing associate, BMR Legal. Views are personal