Recommending far-reaching reforms in tax administration, a government committee has suggested abolition of the post of Revenue Secretary, merger of CBDT and CBEC and broaden the use of Permanent Account Number (PAN).
The Tax Administration Reform Commission (TARC), headed by Parthasarathi Shome, also said the retrospective amendments to tax laws should be avoided as a principle and Income Tax Return should also include wealth tax details.
The panel, which has submitted its first report to Finance Minister Arun Jaitley, also pitched for a separate budget allocation to ensure time bound tax refund and a passbook scheme for TDS (Tax Deduction at Source).
“The post of revenue secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards (CBDT and CBEC). This would empower the tax departments to carry out their assigned responsibilities efficiently,” the report said.
The tax administration, it added, needs to have greater functional and financial autonomy and independence from governmental structures, given their special needs.
It said, the revenue secretary, an IAS, is “likely to have little experience or background in tax administration at the national level and little familiarity with tax.”
The 550-page report further said the two Boards must embark on “selective convergences immediately to achieve better tax governance, and, in next five years, move towards a unified management structure with a common Board for both direct and indirect taxes, called the Central Board of Direct and Indirect Taxes”.
On PAN, the report said it should be developed as a common business identification number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO.
“Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted between central excise and service tax under the CENVAT credit rules,” it said.
The panel further said it is also necessary to provide for de-registration, cancellation or surrender of registration numbers and PAN.
It said the approach to retrospective amendments has resulted in protracted disputes, apart from having deeply harmful effects on investment sentiment and the macro economy and recommended “retrospective amendment should be avoided as a principle.
The panel suggested I-T returns should also include wealth tax return so that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru.
Besides, it called for a dedicated organisation for delivery of taxpayer services with customer focus and made a strong case for “pre-filled tax returns”.
TARC also recommended that in line with international practice, a minimum of 10 per cent of the tax administration’s budget must be spent on taxpayer services. At least 10 per cent of the budget should be alllocated and spent for ICT-based taxpayer services.
On tax refunds, the panel suggested it should be issued within a strict time frame.
“There should be a separate budgetary head for refund of direct tax and indirect taxes in the annual budget out of which refunds should be issued so that there is transparency. Adequate allocation should be made by the government under this head,” the report said adding the rate of interest on refunds should be the same as the interest charged by the tax department.
It also made a case for a passbook scheme for TDS.
“Once TDS is deducted from a payment, TDS should get credited to the taxpayer’s account. This should be like an account with running balance, to be utilised by the taxpayer at his option to set off his tax liabilities,” it said.
It further said there should be a separate vertical for tax collection and to improve the efficiency of debt collection activities, both the Boards should work on setting up risk assessment models.
The TARC also said that it believes that, with far-going reforms like the Direct Tax Code and the Goods and Services Tax on the anvil, the tax administrations are poised at an inflection point requiring strong leadership and bold action.
On dispute management, it said both the Boards must immediately launch a special drive for review and liquidation of cases currently clogging the system by setting up dedicated task forces for that purpose.
On related party transactions, the report suggested both Boards should frame detailed documentation requirements for transfer pricing as well as custom valuation, keeping in view that such documentation should be reasonable, to bring certainty and predictability for the taxpayers.
The report has also recommended that CBDT needs to put in the public domain a national database of the non-profit sector to bring transparency.
The CBDT should also come out with clear Foreign Tax Credit (FTC) guidelines, which should also cover the timing differences between different tax jurisdictions.
Stressing that focus of tax administration should be on customers, the report said there should be a dedicated organisation for delivery of taxpayer services with customer focus for each of the Boards. It also said that in redressing taxpayer grievances, the decision of the Ombudsman should be binding on tax officers.
Also it made a case that “pre-filled tax returns” should be provided to all individuals and the taxpayer will have the option to accept the tax return as it is or modify it.
In either event, it said the filing process would be completed with the submission of the tax return electronically.