Corporates and taxpayers alike have been harassed by the 'tax terror'. It is time to put an end to the income tax department's misadventures

Prime minister Narendra Modi’s second major initiative within days of forming the government is initiating the much-needed tax and law reforms. The government has indicated that it plans to amend the controversial retrospective amendments to the Income Tax Act that were introduced to overturn the Supreme Court verdict on Vodafone. The amendment has been used by tax and enforcement agencies to harass several leading multinationals and had spawned hundreds of litigations in forums across India. While business houses and chambers of commerce were publicly silent, it was common knowledge that several multinationals, including some automobile giants were contemplating pulling out of India as a reaction to the UPA’s repressive tax regime and arbitrary interpretation of regulations. Many held back only on the hope of political change after the elections.

Interestingly, Mr Modi is also set to deliver on his election promise of good administration and rule of law. The PM has asked Union secretaries to give him a list of laws that can be scrapped fast. A detailed list of such laws, based on the findings of Dr Bibek Debroy, is already available in his book In the Dock. Interestingly, Dr Debroy says that the last time that a set of redundant laws was scrapped was in 2001, when Arun Jaitley was the law minister, again under a BJP-led government. Nothing moved after that, despite the huge public clamour for judicial reform to end the harassment of people through ridiculously outdated laws.

Moneylife readers are waiting, with eager anticipation, for action on another promise—income-tax reforms. We have already published two Cover Stories that have detailed how draconian TDS (tax deduction at source) provisions have not only forced people to act as unpaid tax collectors for the government, but also imposed harsh penalties for every lapse. One continues to come across newer details about the unfairness of the system.

On 3rd June, Punit Ved wrote in The Economic Times about how refund laws were stacked against income-tax payers. In a nutshell, he says, if the taxpayer fails to pay tax, or to pay on time, she is subject to severe punishment—12% interest and a 12% penalty. However, if the tax department is late to refund, it pays a mere 6%. What makes it draconian, says Mr Ved, is that the interest paid by the taxpayer is not allowable as expenditure while computing taxable income whereas the interest received by the taxpayer is taxable and gets further reduced post-tax. This unfair system, he says, is an important cause for corruption.

In the past few years, several taxpayers, including retired senior citizens living on their savings, have complained that the government is unilaterally adjusting their legitimate refund to fictitious demands going back to 2001-02. The amounts, often, run into a few thousand rupees but there is no easy redress. They are forced to run from pillar to post. Nagesh Kini, retired auditor and chartered accountant, says that these mindless orders covering 10-12 year-old ‘income’ have emanated from the Central Processing Centre at Bengaluru. Aggrieved by such orders, he suggests a class-action approach to the income-tax ombudsman. Unfortunately, victims of the tax department’s expropriation are usually lacking in leadership to make their case as a group. People who have been waiting for achche din (better days) to begin are hoping to see some far-reaching changes on this front too.