Tax policy in trying times

CONTEXT The events of the pandemic show how it is the need of the hour to modernise India’s archaic tax laws.

As a result of the pandemic induced lockdown, India’s GDP contracted consecutively for two quarters from April to September 2020. But some have gained from the pandemic.
India’s super rich only became richer adding 85 new Indians to the list of High Networth Individuals (with a net worth of more than $50 million), between January and June, while the economy was on the verge of plunging into recession.
Those dealing in stock exchanges also gained. Also, corporate houses, Internet service providers, laptop makers and scientists engaged in medical research are among the gainers.
Other gainers include manufacturers of masks and Personal Protective Equipment.

For most of the country, the pandemic led to unemployment and an increase in poverty levels.
The migrant crisis made thousands struggle to make ends meet.

Though pure economics dictates a big fiscal stimulus at the time of falling GDP and unemployment, the government chose to rely more on monetary policy like credit easing and liquidity flow.
There were no cuts in rates despite the fact that the real interest rate was falling.
The fiscal stimulus was provided in stages and stood at merely 2% of the GDP compared to Japan’s fiscal stimulus (21% of the GDP), Brazil’s (10%) and China’s (7%).

While the profits of Corporate have risen sharply, at the expense of wages and small and medium enterprise profits, cut in the corporate tax rates have further increased their profits.
But tax administration in the country is struggling with the implementation of the equalisation levy due to lack of clarity in the taxation system.
Thus, taxation of multinational corporations has become a perennial problem.

The law related to digital taxation has to be amended following the UN Model Convention. India has to act in sync with the Organisation for Economic Co-operation and Development (OECD).
Examples can be taken from global practices – to increase government revenue, Canada government plans to levy new taxes on foreign technology companies.
According to the Goods and Services Tax (GST) law- any reduction in the rate of tax on the supply of goods or services has to be passed on to the consumer by way of the corresponding reduction in prices.
But in the country, many companies are prone to benefit from GST rate reduction without passing on the benefits to the end consumers. So there is a need to implement Anti-Profiteering Rules vigorously when there is a reduction in the tax rate on any commodity or service.
India’s direct tax law needs to keep pace with fast changing events. In this direction- The Finance Minister announced a new scheme of faceless assessments and faceless appeals.
The dispute resolution mechanism needs change. It is necessary that a mechanism is found to negotiate a settlement through mediation and conciliation or, if necessary, arbitration in connection with tax disputes between the taxpaying companies and the Central Board of Direct Taxes.
Hence, in such a direction the government constituted the Akhilesh Ranjan Task Force to rewrite the Income Tax Act.

Thus, there is a need to modernise our laws and make them compatible with international tax laws.

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