Parthasarathi Shome in New Delhi on Monday. (PTI)
New Delhi, Oct. 21: The Parthasarathi Shome panel on tax administration reforms, which met for the first time today, is likely to recommend changes in the dispute resolution system that may require legal amendments.
The matter assumes importance in the backdrop of a large number of long-drawn tax disputes in India involving some of the world’s top corporate names, including Vodafone and Nokia. Earlier, Cadbury’s and Shell had also been embroiled in litigation with Indian authorities over tax claims.
“We will work to improve the dispute resolution system to leave taxpayers cheerful. We also intend to ring-fence good taxpayers and treat them as ‘customers’,” Shome told reporters here today.
An overhaul of the dispute resolution system is considered necessary as the cases yield the government little revenue and yet result in standoffs not only with the MNCs but also with the countries in which they are based.
The Shome panel will also try to simplify the tax procedure and improve the use of data mined by the government.
“Our work will also have direct impact on the way the GST (goods and services tax) is rolled out,” he said.
Earlier in the day, Shome referred to his previous report on retrospective taxes to state that it could only be envisaged under three circumstances. “One is to clarify, one is to correct for mistakes and the third one is to address very egregious (bad) tax structure, but not to use it as a revenue generation.”
However, he clarified that the government should not be blamed for the retro taxes. He pointed out that the finance ministry had introduced safe harbour rules for taxpayers, which bring about a certainty on taxes and prevent chances of raids and litigation.
“These measures seem to be slowly bringing back the confidence of the taxpayers and investors and the final outcome is yet to be seen as a series of changes of which some are still anticipated are yet to unfold,” Shome said.
The earlier Shome panel was set up by Prime Minister Manmohan Singh to study GAAR (General Anti-Avoidance Rules) and give its opinion on the retrospective tax proposals passed as part of Finance Bill 2012. The report had said, “Retrospective tax should occur in the rarest of rare cases,” and only to correct apparent mistakes or anomalies in existing laws or to protect the tax base from highly abusive schemes.
According to the officials of the Central Board of Direct Taxes (CBDT), the report supports their contention that the retro tax imposed on Vodafone was valid. Top CBDT officials who drafted the retro tax provision — amendments to Section 119 of the Income Tax Act — say the whole purpose is to stop firms such as Vodafone from abusive tax planning.
The case has its roots in the revenue department’s move to gouge out $2 billion in taxes from Vodafone relating to its $11.2-billion buyout of Hutchison Essar’s operations in April 2007.