The digital alternative to old school scrutiny

E-assessments, if implemented, could act as a catalyst to correct tax anomalies

 

The Finance Minister, Arun Jaitley in his fifth Budget on February 1, 2018 has proposed a new scheme to make assessments more transparent and accountable, by eliminating the interface between the assessing officer and the assessee.

The Indian tax administration in the recent past has taken bold steps using technology to build an interface between the tax-payer and the Government. We have already witnessed one of the major tax reform in the form of GST. The Finance Act, 2018 has taken a huge step towards implementation of e-assessment.

Globally, developed economies are also piloting the use of technology in tax administration. On these lines, to eliminate the filing of return of Income, the UK tax authority (HMRC) has initiated a digital pilot to collect real time data of the incomes and expenditure of businesses and estimate taxes owed by taxpayers.

In India, e-assessment was first introduced by the Central Board of Direct Taxes (CBDT) on a pilot basis in 2016 in seven cities which was in 2017 extended to 102 cities. Finance Act 2017 made e-assessment a virtual reality by revising the time limits for completing assessments to 12 months from AY2019-20.

After two years of piloting the technology, the revenue authorities now have a technological backbone in place to formally legislate the e-assessments into law. Further, Section 143(3) of the Income-tax Act 1961 (Act), has been proposed to be amended for providing e-assessment scheme as well as for granting power to the Centre to make notification in the Official Gazette for enabling e-assessment procedure.

While the e-assessment has been largely viewed as a blessing to the tax administration, tax-payers may face challenges as:

    * Lack of understanding on tax authority’s approach;

    * Firm response timelines for assessment proceedings.

Additionally, digital literacy of the stakeholders, lack of infrastructure and complex unresolved tax-litigation would act negatives towards successful implementation of e-assessment.

For smooth implementation of e-assessment, the government would need to invest in imperative measures:

    * Encouraging tax-payer to volunteer for e-assessment scheme;

    * Ensuring that any additional information gathered from e-assessment would not necessarily be subject to re-assessment for the tax payer;

    * Allowing e-assessment to be conducted on multi-year returns (for instance, assessment of two/three year at a time);

    * Consolidated assessment proceedings for income tax and withholding tax;

    * Provisions of the Act may also be aligned to enable the business group to file a consolidated tax return in India for all their taxable entities;

    * Incorporate the measure suggested by Tax Administration Reforms Commission like having industry experts on assessment;

    * Stating standard position on numerous unresolved tax matter in public domain.

These measures would also pave way for reduced appeals and create a cyclical impact on the appellate forums, including courts, to speed up resolution of substantive issues on a real-time basis and reduce costs presently involved with appeal procedures.

With large tax payers having to live with the present head line tax rate of 30 per cent, there is an urgent need to ensure that Corporate India is not stifled with higher effective tax rates (including embedded costs arising from levy of penalties and interests) from protracted assessments.

E-assessments, if implemented in right measure, could act as a catalyst to correct the anomalies of the past and allow for efficiencies to accrue for the tax function and facilitate more investments and employment creation.

This would further enhance in making India a preferred place to do business.

The writer is Partner – Tax & Regulatory, PwC. Tarun Narang, Assistant Manager, also contributed to this article

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