India is reviving attempts to overhaul its half-century-old direct tax laws as it looks to increase the share of collections from the lowest in a decade.
Prime Minister Narendra Modi’s government is working to ensure that tax payers don’t need to submit multiple returns and have quicker options of redress should a dispute arise, said people familiar with the matter. A new bill will probably be ready by early 2018 for stakeholder comments, they said, asking not to be identified citing rules on speaking with the media.
About 10 trillion rupees ($153 billion) -- some 63 percent of India’s annual budgeted revenue or the size of Qatar’s economy -- are locked in litigation due to byzantine tax rules and varying interpretations. Costly compliance and loopholes keep about 99 percent of the population outside the income tax net, making India one of the worst places in the world if you are a tax payer.
"Tax rates in India are not high, nor are they unreasonable, when compared with other jurisdictions," said Daksha Baxi, executive director at Mumbai-based tax consultancy Khaitan and Co. What makes the system difficult to navigate is "the process and the manner in which the tax provisions and rules are administered," she said.
India has attempted earlier to combine various laws into a simple tax code. However, previous efforts failed as the former government lacked the numbers in parliament while Modi’s administration concentrated on indirect levies and introduced a nationwide goods and services tax that has united India’s 1.3 billion population into a single market.
The Income Tax Act dates back to 1961 and still holds echoes of the past where the economy was closed to the world, relying instead on high domestic tax rates and an invasive tax office to help fund health and education for the masses.
"The act has undergone thousands of amendments in last few decades and has virtually become like a patchwork," said Rahul Garg, partner and leader, direct tax, at PwC India. "The new law should be modern and incorporate digital changes and use of technology."
Any inquiries from the tax office will be emailed rather than have the tax official show up at your door, and tax payers will be able to file disputes or appeals online instead of repeated rounds to the government, the people said. Clarity will also be provided on penalties for failing to furnish tax returns, comply with notices or concealment of income, they said.
Global funds who pay withholding tax on investments should be able to get by with just one payment receipt, rather than having to file a separate tax return. Rules for transactions involving related entities --- covered under the so-called transfer pricing mechanism that has embroiled companies including Cairn Energy Plc and Vodafone Group Plc in lengthy disputes -- may be simplified too.
The government is also considering reducing the number of tranches for advance tax payments. Companies currently have to pay out in four annual installments.
Surabhi Ahluwalia, spokeswoman for the Central Board of Direct Taxes, declined to comment on the government’s plan. Modi last month urged tax officials to improve the country’s tax administration by 2022 by focusing on electronic assessments, resolving appeals with the help of technology and boosting revenue.