India’s unique contribution to the international fiscal dictionary is the invention of the term ‘tax terrorism’. Former Chief Justice MC Chagla once commented that equity and tax law may be strangers, but the tax department has made them sworn enemies. No one is above the law, but as Nani Palkhivala said, so long as our Constitution is in force, everyone is above state terrorism.

In a recent case, the Karnataka High Court criticised the unnecessarily dogged approach of the tax department to multiply litigation, wasting precious public time. The High Court said: “First raising unsustainable illegal and high-pitched demands and then seeking to coercively recover the same, showing scant regard to the orders passed by the highest Tribunal under the Act and then invoking the writ jurisdiction to support such effort is an utterly irresponsible and unfair behaviour.” The court awarded exemplary costs, directing the principal CIT and the assistance commissioner responsible for filing the writ petition to pay ₹50,000 each — from their personal resources, not government funds — within two months.

In another case, the Sri Sai Baba Sansthan Trust of Shirdi was asked to deposit ₹122 crore even when an appeal was pending and the case was found in its favour by earlier rulings. The High Court stayed the recovery, observing that the aim of the entire exercise of the department appeared to be only to collect some taxes prior to March 31, 2018.

Tax contribution

Small and medium income-tax payers are wary of approaching the department even for legitimate refunds due to them. Every small taxpayer will have a story to tell about the treatment meted out by the tax department. It is worth pondering why the taxpayers are mistreated.

Indian taxpayers are small in number, they don’t have the voting muscle. Take a look at the number of taxpayers for 100 voters in some of the countries: Norway 100; Canada 95; the US 70; and India 7.

Income-tax payers don’t matter as voters. They can’t organise Shaheen Bagh-type protests.

There is a common perception that India’s tax-GDP ratio compares unfavourably with other countries. A study by Rajiv Memani, Chairman, E&Y Tax and Economic Policy Group, of 130 countries for 2017 shows that though agricultural income is not taxed, India outperforms the tax-GDP ratios of countries such as China, Russia, Indonesia, Spain, Germany and Sweden despite having lower a per capita income of about ₹2,000.

Taxpayers’ rights

The most significant amendment in the latest Budget relates to the introduction of the twin tax system, giving the option to taxpayers to continue with the existing tax structure and rates with exemptions or move over to a new tax regime with lower tax rates and no exemptions.

Faceless assessment now moves to faceless first appeal. The Vivad se Vishwas’ scheme has been introduced. Enumerating taxpayers’ rights and enhancing the efficiency of the delivery system of the income-tax department, the income-tax law is being amended to mandate the CBDT to adopt a taxpayers’ charter. The US, Canada and Australia already have such a charter built into their tax code.

The tax system is being simplified and pre-filled returns will be made available. There will be no audit for cases involving a turnover of less than ₹5 crore.

The International Bureau of Fiscal Documentation, in a recent report, stressed the importance of such a charter to protect the rights of taxpayers. As many as 40 countries have such a charter in place but only in 33 per cent of these cases is the charter legally effective.

Belgium, Brazil, Chile, Italy, Kenya and Mexico have the charter as part of their statutes. The charter does not have the protection of the Act in Australia and Canada. The proposed taxpayers’ charter in India, however, will be part of the Income-Tax Act, empowering the CBDT to issue instructions to field formations.

This should not go the way of CBDT circulars. Taxpayers’ rights are sacrosanct. The CBDT need not have a say in the matter. The rights should be enforceable in a court of law independent of the CBDT.

The Prime Minister has also declared that civil offences under both the company law and the tax law should not be criminalised, and action will be taken to modify the statutes in this regard.

The taxpayers’ charter will make our law civilised and cultured, and improve the tax culture. If properly implemented, the PM and the FM can take pride in the achievement of bringing in a civilised tax code.

Ramanujam is a former Chief Commissioner of Income-Tax, and Sangeetha is a Chennai-based advocate