The Economic Survey 2020-21 rightly points out that the platform for ‘Transparent taxation- Honouring the Honest’ stands on three pillars of tax administration reforms namely, Faceless assessment, Faceless appeal, and the Taxpayers’ charter. In fact, as recently as January 12, the Central Board of Direct Taxes (CBDT) notified the ‘Faceless Penalty Scheme’.
The procedure to be followed under the Faceless Penalty Scheme is largely the same as in the case of faceless assessments, with cases being allotted to a Regional Penalty Centre based on an automatic allocation system. It does offer an opportunity for a personal hearing, but the circumstances in which such a hearing will be granted are not yet notified.
As the Economic Survey points out, automated random allocation of cases, team-based assessment and peer reviews, provision of draft assessment order, review and finalisation by teams of tax officers located in different cities and no requirement of a physical interface between tax payers and the Income-tax (I-T) department, is aimed at ensuring fairness.
Faceless assessments are ongoing and there have been some teething challenges – such as ‘not so pointed’ queries being raised by the I-T authorities, resulting in an infinite number of documents to be loaded and endless details to be provided. Over a period of time, this process is sure to be streamlined and the so called ‘ standard template’ queries may give way to a sharper assessment process.
We also have a Taxpayers’ Charter in place, which was introduced by the Finance Act, last year. In short, it emphasises the importance of fair, courteous and reasonable treatment to the taxpayer. It also calls upon the taxpayer to meet his obligations – which needless to add includes payment of tax dues in a timely manner. But is this enough? For instance, the provisions of the Taxpayers’ Charter are not justiciable. Soon after the budget announcements last year, this blogger had asked: How comforting is the charter?
In certain instances, taxpayers especially corporate taxpayers have faced ‘frivolous’ demands toward the end of the year, to enable the Income tax official to meet his or her target. Perhaps the process of faceless assessment and faceless penalty may bring this to an end. However, other genuine grievances could remain.
A Tax Ombudsman deals with complaints from taxpayers relating to decisions, actions and even omissions of the tax administration. The role of the office of the Ombudsman is to protect the rights of a taxpayer, prevent abuse of power (as mentioned earlier, faceless mechanisms could mitigate such abuse), provide protection against negligence, delays and usher in overall transparency.
Perhaps, the time is right for the Tax Ombudsman to step in, who can effectively sort out grievances – perhaps face to face. As a matter of best practice, the Ombudsman should remain independent of the functioning of the tax department and must be created by the act of the legislature.
The Economic Survey, details the past not so successful experience that India had. The office of the Income-tax Ombudsman was set up in 2003 and for Indirect-taxes in 2011.
The officers were picked from among the tax officials itself to inquire into grievances and complaints against the functioning of the tax authorities. The Ombudsman’s role was advisory in nature. The office of the Ombudsman could settle complaints either through agreements between the complainant and the tax department through conciliation and mediation or by passing an award, with a token compensation for loss suffered by the complainant not exceeding Rs. 5,000. Owing to the ineffectiveness of this mechanism, it was abolished in February 2019. E-portals which are currently available for addressing grievances have a limited scope and taxpayers could understandably be hesitant to approach ‘Sewa Kendras’ that are manned by I-T officials.
The Economic Survey refers to best international practices in countries such as Canada, UK and South Africa, which provide for an Ombudsman system.
South Africa, for instance, introduced this mechanism in 2013, through the Tax Administration Act. The Tax Ombudsman is appointed by and reporters directly to the Finance Minister. As TOI had reported earlier, in South Africa, there is a specific time frame set down for settlement of grievances by the Ombudsman. While its intervention is non-binding, tax authorities had implemented more than 99% of its recommendations.
The Economic Survey emphasises that there is a need to reinvigorate the systems of grievance redressal in India, and incorporate a more holistic view of enhancing customer experience and protecting taxpayer rights.
Will we see an independent Ombudsman mechanism being introduced? It remains to be seen.
Views expressed above are the author’s own.
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