Avoid retro tax law as a principle: Shome panel

Retrospective amendment to tax laws should be avoided as a principle, the Parthasarathi Shome commission on tax reforms has suggested. The Commission’s view on retrospective tax amendment comes at a time when efforts are on to restart conciliation between the Government and Vodafone over the ₹20,000-crore tax dispute.

The UPA Government, while presenting the Budget for 2012-13, had brought in a retrospective amendment to the Income Tax Act in order to nullify the verdict of the Supreme Court which was in favour of Vodafone. The BJP manifesto also promises to provide a non-adversarial, conducive tax environment.

In its report, the Tax Administration Reform Commission (TARC) also endorsed the recommendations given by the 1992 committee on tax reforms headed by Raja J Chelliah for abolishing the post of Revenue Secretary in the Ministry of Finance. It feels that the functions of the Revenue Department should be allocated to the Central Board of Direct Taxes and the Central Board of Excise and Customs.

The commission has submitted its first report to Finance Minister Arun Jaitley. It further said that the administrative decisions and tax policy are neither based on any analysis nor have any international standards. “Pre-budget discussions are usually back-of-the-envelope calculations of revenue impact. The impact on a taxpayer is considered in a cursory manner, if at all. Retrospective amendments clustered during 2009-12 may reflect this lackadaisical approach. In turn, this reflects complete lack of accountability at any level except on grounds of lagging behind in revenue collection,” the report said.

On abolishing the post of the Revenue Secretary, it said: “This would empower the tax departments to carry out their assigned responsibilities efficiently.” Currently, the post of Revenue Secretary is held by an Indian Administrative Service Officer, while the Chairmen of two boards, CBDT (for handling issues related with Personal Income Tax, Corporate Tax, STT & CTT and Wealth Tax) and CBEC (for handling issues related with Custom Duty, Central Excise Duty and Service Tax) are Indian Revenue Service officials.

The commission argued that an IAS officer is likely to have little experience or background in tax administration at the national level and little familiarity with tax, including international tax, issues that are increasingly taking the centre stage.

“Yet she/he is the final signatory on decisions on tax policy and administration matters prior to their arrival for the Finance Minister’s consideration,” the Commission observed. The Commission has recommended that the two Boards embark on selective convergences immediately to achieve better tax governance, and, in the next five years, move towards a unified management structure with a common Board for both direct and indirect taxes, called the Central Board of Direct and Indirect Taxes.

Tax boards rejig It suggested the setting of a Governing Council, headed in rotation by the chairpersons of the two Boards and with participation from outside the government, to oversee the functioning of the two Boards.

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