Failed gambit

With the last day for declarations under the Vivad Se Vishwas scheme almost here, and the amount raised by the Revenue Department falling far below expectation, it’s clear that the Centre needs to introspect on its strategy to garner more tax. The bid to close numerous litigations in indirect tax demands through the Sabka Vishwas Legacy Dispute Resolution scheme in 2019 is reported to have met with reasonable success; the Centre tried to replicate this in direct taxes as well by announcing the Vivaad Se Vishwas scheme in Budget 2020-21. The contours of the scheme were similar to the indirect tax dispute resolution scheme, involving waiver of interest, penalty, and prosecution for those who settle dues by March 31, 2021. But, according to the latest available numbers, the Centre had collected only ₹72,480 crore tax through the scheme till mid-November — well short of expectation. This is because most outstanding tax demands are not realisable, anyway.

The pressure on the revenue officials to increase tax base and collect more taxes has resulted in a surge in tax demands. The Tax Department now needs to face the reality and make amends. According to the Standing Committee on Finance, there were 4,83,000 direct tax disputes pending before the Commissioner (Appeals), the Income Tax Appellate Tribunal, High Courts and the Supreme Court with the disputed amount of ₹9.32-lakh crore towards the end of November 2019. If the amount not under dispute is added, the value of outstanding demands increases to almost ₹13-lakh crore. But the Centre should have been cognisant of the fact that 95 per cent of the total outstanding demands valued at ₹12.4-lakh crore is ‘difficult to recover’, as specified in the Standing Committee Report. These demands may never be realised due to reasons such as the assessee not being traceable or possessing inadequate assets, demand being stayed by appellate bodies, company under liquidation, and so on. The piling-up of the disputes is a problem of the Centre’s making. Thanks to its drive to check tax evasion, reduce black money and increase revenue, officials in the Tax Department have been asked to be more productive, resulting in too many frivolous demands. These disputes hurt all stakeholders.

Of concern is the fact that the Revenue Department is continuing its drive to raise tax demands this fiscal year, too. Recent reports of the Tax Department identifying over 6,000 assessees whose income in the return did not match their assets is a case in point. While reducing tax evasion with the help of data from other sources such as GST returns, banks and other investments is a good idea, the liability could be difficult to establish in many cases open to varied interpretations. The promise held out in the recently launched Tax Charter, of a fair, courteous and reasonable treatment from tax authorities, should not be forgotten.