It was a reform in tax administration that was initiated with lot of fanfare during Chidambaram’s stint as Finance Minister in UPA-I

The concept of large taxpayer units (LTUs) were introduced to facilitate large businesses and render single-window services to them.

Besides reducing the transaction and compliance cost for the taxpayers, such administrative mechanisms were expected to help enhance the efficiency of tax administration.

But five-to six years down the road, policymakers and fiscal experts are still not sure whether it has yielded the desired results. LTUs for some reason are seen to have delivered less than what was promised.

Late in Adoption

India adopted the concept of LTUs after a long time, following the principles of 50 other countries, including 20 from Asia, before going ahead with this tax reform.

But the main difference was that it kept the LTU system optional for large taxpayers. In no other country has LTU been introduced as voluntary facility to large businesses. Only India kept it as an optional scheme for large taxpayers.

In India, a taxpayer (single-PAN based entity) who has paid in cash (or current account) excise duty of Rs 5 crore or more; or service tax of Rs 5 crore or more; or advance income tax of Rs 10 crore or more in financial year 2004-05 or subsequent financial year could opt for the scheme

Other countries have, over the years, introduced several special arrangements which have made LTUs progress and become a useful facility. But India appears to have remained where it was on the LTU front.

In most countries, LTUs have been divided by sectors — telecom, IT, paper, aviation etc. The idea is to enable the taxman to closely follow the business cycles of each sector and recognise situations of downturn.

This could allow them to offer special benefits like TTP —time to pay— for the assesse. ‘Time to pay’ is a facility that could allow assesses to apply for more time to remit taxes without having to fork out penalty. Such a facility is handy in times of sectoral downturns.

Even as many such arrangements have progressed in other countries over years, India is still not employing them.

reasons

Part of the reason is that India is not completing the reform process which it had set out to do, according to Parthasarathi Shome, ICRIER Professor and head of the Prime Minister’s GAAR committee.

Unless LTUs are made compulsory, it would not yield benefits to either side — taxman or the assesse, Shome said at a recent industry event in the capital.

As long as LTUs are voluntary, it does not give tax administration the impetus to take measures, he pointed out.

Making it compulsory will not be to hound businesses. But unless all players above a particular size don’t come under the LTU, it would be difficult for Government to treat everyone in same way and design benefits, Shome said.

Correctives

So what is stopping the Finance Ministry from reviewing the functioning of LTUs and take corrective measures to improve the features?

The reason is not hard to fathom . It has to be top driven. In the Indian scheme of things, it has to come from the top brass of the Finance Ministry, who have other challenges like mounting deficits, slowdown in revenues, threats of a rating downgrade.

Interestingly, the Finance Ministry had (when the LTU scheme was introduced) considered making it a mandatory scheme, but later decided to keep it as an optional one.

On economic growth, the main question in the minds of everybody is what should be done to get India back to the pre-crisis growth trajectory of 9 per cent levels.

Shome has some answers to this difficult question. There is need to create right business environment. Impetus for growth can come only from the corporate sector. It was corporate sector savings that fuelled growth in 2003-08.

Providing better tax facilitation and creating an environment of stakeholder consultation before big tax policy changes are effected, could improve the outcomes for both taxpayer and taxman, according to Shome.

With budget-related work gathering pace at North Block, Shome also has a suggestion for businesses. They should collectively bargain for tax incentives at industry level, rather than adopting sub-group oriented demands for incentives.

srivats.kr@thehindu.co.in

(This article was published on December 2, 2012)
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