Just how unfair tax demands have become of late is best judged from the fact that, between FY08 and FY14, tax arrears rose more than 5-fold from Rs 103,808 crore to Rs 583,347 crore while total tax collections rose under two times, from Rs 593,147 crore to Rs 11,38,733 crore. And, in terms of the arrears, while the disputed amount was around 62% of total arrears in FY08, the proportion rose to 86% in FY14. As a result, in FY13, there were nearly 2 lakh cases pending before the appeals commissioner (in the case of direct taxes) and over 31,000 each in the appellate tribunal and high court. How irresponsible the demands can be was best brought out in the Vodafone and Shell cases, where both companies were charged taxes while bringing in funds from overseas into their local subsidiaries—the taxman argued that the shares were grossly undervalued, and so applied transfer pricing rules on them; the Bombay High Court, however, ruled in favour of the companies and, to its credit, in a big break from tradition, the government decided that it would not appeal the verdict in the higher court. While the government did this to boost investor sentiment—in most cases, the taxman’s appeals ensure cases drag on for decades—this may not have helped. An analysis of appeals, in the Standing Committee on Finance’s report in April 2015, found that, in the first 6 months of FY15, just a fourth of appeals filed by the taxman in the Supreme Court went in his favour. The number was an even lower 21% in the high courts and a still lower 18% in the appellate tribunal.
Which is why, as FE reported on Monday, the government’s decision to overhaul the annual performance appraisal system to take this into account is a good one. What the government plans to do now is to appraise officials on the basis of the taxes actually collected and not merely on the basis of the demands raised by them. At the conference of tax commissioners in the capital on Monday, finance minister Arun Jaitley made much the same point again—that while it is very important to be able to collect more taxes, it is equally important to ensure that taxpayers are not harassed by irrational demands. Indeed, the Tax Administration Reform Commission had earlier pointed out that while there were 17 crore PAN-card holders, there are a mere 3.6 crore taxpayers—what the taxman needs to do, instead, is to use the information got through annual information returns (AIR) and use these intelligently to get non-filers to submit tax returns. While it is true tax buoyancy is related to the growth of the economy, it has to be a matter of concern that this fell from 11.9 (at the central level) to 9.9 in FY15. Indeed, while the government goes after black money in keeping with its election promises, it might find it will get more money if it simply settled the lakhs of pending cases quickly.
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