The past few years have witnessed a significant reform in the direct taxes realm. The focus has been on building a mechanism for tax compliance which is transparent and builds more trust. There has also been some reduction in the percentage of scrutiny assessments and steps have been taken for initiation of faceless assessments. Tax administration has been reformed to streamline the collection and analysis of information to avoid unnecessary income tax notices.
An important step in building an atmosphere of trust and reliability is, ensuring taxpayers have certain rights and the tax administration is accountable for ensuring these rights are protected. The government had promised a Taxpayers’ Charter in the Union Budget of 2020 which was proposed so as to define and protect taxpayers rights. Taxpayer’s Charter which has been recently announced, enshrines taxpayers rights and obligations and also lays down commitments from the tax department to the taxpayer. The United States of America and several European countries also have a taxpayer’s charter.
The rights and obligations can be part of the law or they can be purely an administrative document. The Taxpayers’ Charter in India will be part of the tax law. The Charter, in its details, specifies the commitments of the income tax department to the taxpayers and in turn, the obligations of the taxpayers.
The Income Tax Department had in 2014 made a citizens charter declaring their vision and mission to provide key services within definite timelines. The Taxpayers Charter furthers that vision with enhanced delivery standards and building trust with the taxpayer. The Charter contains a commitment from the Department to accept a taxpayer as honest and treat them in a fair manner. Also, among other things prescribed in the law for representation and appeal by a taxpayer, the Department commits to provide complete information to a taxpayer. The overall aim is to make the system of collecting and administering taxes less burdensome for a taxpayer.
Taxpayers must be treated as true customers of the income tax department, therefore recognition of their rights is an important part of the charter. With this spirit, the charter states that a taxpayer shall be provided complete and accurate information, confidentiality shall be maintained and tax authorities shall be held accountable for their actions. The department will allow every taxpayer to choose a representative of their choice and provide a mechanism for grievance redressal. Taxpayers can also approach the Department for any issues or clarifications in compliance. The Charter also expects taxpayers to comply with the reporting requirements, maintain records and pay taxes within the due dates. Taxpayers should understand their tax obligations and also respond to notices in a time-bound manner.
It is important to understand that the process of reaching out to taxpayers and coordination also requires a simpler tax law. The notifications and circulars can be more informative and clear in their presentation. A complex language often creates room for error and incorrect interpretation at the taxpayers’ end. There are several due dates a taxpayer needs to comply with to safeguard themselves from interest and penalties. Clarity in the compliance will increase taxpayers’ participation and reduce litigation.
Trust and transparency can be built when a policy is supported by on ground implementation. This can be achieved by suitably training tax officers and the entire administration. Incorrect orders passed can lead to taxpayer exasperation and do little to improve sentiment. If orders are only passed to boost tax collections they are bound to be met with disdain and impact taxpayer’s confidence in dealing with the administration.
Apart from a commitment to taxpayers, a tax policy based on certainty offers increased room for business opportunities. Taxpayers should be able to determine their tax liability and there should be minimum room for litigation. Unnecessary litigation is burdensome on taxpayers and hampers their motivation to make a fresh start. The changes in tax laws should be forward-looking and based on the principle of fair and just tax policy.
Successful implementation of the Taxpayers Charter is dependent on the continuous review of the Charter and its adaptability to changing business conditions. The Charter is a step in the right direction in building a taxpayer-friendly approach to tax collection. Its real test lies in its in-spirit implementation.
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