Government forms panel to simplify Income Tax Act

The government has finally woken up to the need for simplification of the income tax law. It has constituted a 10 member panel headed by former Delhi High Court judge R V Easwar, to recommend measures to make India more business friendly , by turning the interpretation of the law more predictable and certain.

The decision comes in the backdrop of growing concern over India's retrospective taxation measures, which saw global players such as Vodafone seek international arbitration to resolve taxation issues. Global investment funds had, in the recent past, cautioned the government that unless taxation related uncertainties are cleared, the country may not see major inflow of foreign investments.

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The mandate of the committee is to specifically address these issues. It will study and identify the provisions/phrases in the Income Tax Act 1961 which are leading to litigation due to different interpretations. It will identify the provisions which are impacting the ease of doing business and the areas and provisions of the Act for simplification in the light of the existing jurisprudence. The committee is also expected to suggest alternatives and modifications to the existing provisions to bring about predictability and certainty in tax laws without substantial impact on the tax base and revenue collection.

It has been given a 31, January 2016 deadline to submit its recommendations. While the importance of clarifying income tax laws to facilitate foreign investment flow cannot be discounted, the simplification of the Act is needed for many more reasons.

In fact, rationalization and simplification of rules and procedures have been the key recommendation of most committees and panels that dealt with income tax laws in the recent past. The Direct Tax Code Bill, which never became a law, was a move in this direction. The Tax Administration Reform Commission talked about it. It has been a refrain in Parliamentary standing committee recommendations.

The major reason for increasing demand for relook at the tax law is the increasing volume of tax errors. In 2013-14 Rs. 5,80,325 crore were tax arrears for direct taxes.  It became Rs. 6,75,431 crore in 2014-15.  The bulk of these arrears was because of pending litigations. The lack of  accountability  of  the  assessing  officer  in  raising  unrealistic  tax  demands  without  accompanying  responsibility  for  recovery  has  often been cited as a reason for long  winding  disputes  between  the  tax administration and taxpayers with a low proportion of recovery of tax.

The members of the committee include former law secretary V K Bhasin, chartered accountant Vinod Jain and Mukesh Patel, consultants Rajiv Memani and Ajay Bahl, advocate Ravi Gupta, investment advisor Pradip P Shah and Indian Revenue Service officers Arvind Modi and Vinay Kumar Singh.
 
The committee will not have any difficulty in finding the areas in the tax laws that need improvement. The key is speedy implementation.