Union Budget 2020 - Necessity of Tax Amnesty Scheme..!!
Amnesty is the forgiveness of something. Amnesty is anything that says,
'Do it illegally, it will be cheaper and easier.
Tomorrow morning, the Hon'ble Finance Minister set to present her second Union Budget for the financial year 2020-21. As usual, it is anticipated that Finance Minister is going to announce a number of tax proposals under both Direct and Indirect Taxes with a 'NO' roll back option later...!. After witnessing a huge response for recently ended 'Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019' launched to reduce the pending legacy cases under erstwhile Central Excise and Service Tax regime, and likely overhaul of 60 years old Income Tax Laws, there is a need for such a similar scheme under the Income Tax and Customs Law also.
Legacy Tax law Cases
No doubt, India has a good system of 'Tax Dispute Resolution Mechanism' in place or one can say on 'Rule Book or Paper'. The system is also not free from darker sides which depicted by the Economic Survey - 2018, (Economic Survey - 2020 to be tabled on 31st
January, 2020) the country's biggest litigator is the Tax Department or Revenue, which unambiguously losses 65 per cent of them. Another Statuary Report 'Direct Taxes - Report No. 9 of 2019' for the year ended March, 2018 by the Comptroller and Auditor General of India (CAG) tabled in Parliament in last July, gives a clear picture of the trend of disposal and pendency of cases at various fora.
Backlog of Tax Cases at various forums as on 31st March 20181
|Dispute Resolution Forum
||Number of cases pending
||Tax amount locked in litigation (crore)
|Commissioner of Income Tax (Appeals)
|Income Tax Appellate Tribunal (ITAT)
|High Courts (HCs)
|Supreme Court (SC)
When compared the figures to its previous year Report, that total amount locked up at ITATs/High Courts/Supreme Court has seen marginal increased to Rs. 4.43 lakh crore (82,643 cases) compared to Rs. 4.40 lakh crore (82,806 cases) as of 31st March 2017.
The approximate timeframe involved at each level is depicted as follows - 2
From the above Table, it is clear that a dispute arisen at the Assessing Officer level may take any time between 10 to 20 years approximately before it reaches finality at the Supreme Court.
Voluntary Disclosure Income Schemes
For India, it is not new to come up with 'Voluntary Income Disclosure Schemes' under Direct Taxes to allow tax evaders to declare their undisclosed incomes or assets and come clean. India has introduced as many as 14 such schemes since 1950s. One such scheme was 'The Voluntary Disclosure of Income Scheme (VDIS) - 1997' introduced by Sri. P Chidambaram then Finance Minister in his Union Budget for 1997-98 allowed tax evaders to come forward & disclose their undeclared wealth either in the form of cash or shares or gold or real estate assets, held in India or abroad without disclosing its source of funds. Since Scheme allowed to pay barely 30 and 35 percent of the tax on such declared income, waiver hefty interest, penalty and immunity under various laws say, the Income tax law, wealth tax law and the foreign exchange law fetched a very good response where more than 3,50,000 ordinary Indians came forward to declare their undisclosed income or assets worth of Rs. 33,000 crore and paid their due taxes about Rs. 9,760 crore. The VDIS Scheme has laid the foundation for many more such schemes down the years.
Under recent two more such schemes3, the 'Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 with the tax rate at 60 percent got Rs. 4,164 crore worth of declarations which fetched revenue about Rs. 2,428 crore and 'Income Disclosure Scheme, 2016' with the tax rate at 45 percent got Rs. 65,250 crore worth of declarations which again fetched whopping revenue of about Rs. 29,362 crore.
Interestingly, the current regime has increased the 'Monetary Limit for Appeals' on many occasions to discourage likely litigations/appeals and to reduce the pending cases at various fora, helping to dispose of thousands of cases having a low tax effect. It is true that amnesty schemes are not the final solution, but given status of economy, backlog of cases and prevailing huge amount of undisclosed income and assets, the Finance Minister may think and bring one more such scheme atleast in the interest of Revenue..!!
1. Report of the Comptroller and Auditor General of India for the year ended March 2018 - Direct Taxes - Report No. 9 of 2019
2. FICCI's Dispute Resolution in Tax Matters - A Discussion Paper March 2013