The Hindu Business Line : Taxing disputes

GIVEN THE QUANTUM of mobilisation by the Centre and States, the nearly Rs 25,000 crore locked in tax disputes involving major corporate entities may not seem large. After all, the Centre and the States collectively raise over Rs 3 lakh crore in taxes and the disputed amount is less than 10 per cent of the total. But that such disputed sums are growing marginally ahead of the rate of growth in tax collections themselves is worrisome. Left unchecked, it can cause some fiscal distress in the medium to long term, especially for the States whose resource base not only is a lot smaller but also growing at a far more sluggish rate. Evidently, either the exchequer, perhaps under compulsions of sustaining a buoyancy in collections, is interpreting the tax laws in an unreasonable manner and in the process triggering disputes with the assessees, or the corporate sector is raising disputes in a cynical attempt at exploiting delays inherent in the process of adjudication to stave off temporarily, at least, the obligation to pay the tax dues.

In the past, burgeoning arrears of taxes of corporate India had given rise to a demand that at least half the disputed tax amount be paid before any litigation is started. While this may eliminate the incentive element in a litigious approach to tax demands, it could cause undue hardship to a few with bona fide disputes with the revenue. There have been enough instances of officials demonstrating excessive zeal in administration going beyond the normal calls of duty. The alternative remedy of setting up quasi-judicial institutions to speed up the process of administration of justice has also not been too effective. Such structures have only further delayed compliance as far from eliminating the jurisdiction of High Courts they ended up merely as an additional layer in the judicial system.

The judicial system is not going to lend itself to any dramatic reform in the near future. Equally, the attitude of the taxpayer to look for loopholes to exploit will not change. In the circumstances, there is need for an imaginative approach to tackling this problem. It is not a case of high rates that is causing the disputes though in select cases of sales taxation that might well be the case. Largely, the problem flows from a complex web of incentives and concessions with equally stringent norms of eligibility. If these irritants are eliminated then much of the underlying conditions that give rise to disputes too would disappear. One needs no further confirmation of this proposition than in the quantum of excise duty disputes which has grown at a mere 5.5 per cent though excise duty collections themselves have been growing at a robust. For long the administration of excise duty has been plagued by disputes of commodity classification and multiplicity of rates for the same commodity depending on the end-use and the profile of manufacturers and so on. But a decade of reforms has largely eliminated these features for the overall improvement in the climate of tax compliance. The lessons learnt on this front need to be replicated elsewhere.