The ‘Honouring the Honest’ scheme is a bold step, but has nothing in it to reward honest taxpayers.
The Income-tax Act, 1961 (the Act) was amended in 2019 to introduce the concept of faceless assessment and in 2020 to provide for statutory recognition of a tax-payers’ charter and an enabling provision for faceless appeals. The “Transparent Taxation-Honouring the Honest” platform was launched on 13 August 2020, covering the aforesaid aspects. A transparent taxation regime is a pre-requisite for growth in every country and it assumes much more importance in a country like ours where the phrase “tax terrorism” got coined for our tax administration. While these initiatives do make an attempt to do a makeover of the tax administration by putting in place a structure for transparent taxation, questions, however, can be asked about its intention of “Honouring the Honest”. When you want to honour someone, you make him feel special and the transparent taxation scheme does not do that.
A tax payer feels honoured not by receiving a certificate from the tax authorities, but when he sees the amount collected by way of tax being used for nation-building and when he is rewarded for his contribution as a nation-builder. Many countries such as Japan and Korea have various ways of rewarding taxpayers. That aspect is missing in this new initiative; however, be that it may, one must not lose sight of the bold step which has been taken by the government for which credit must be given to the government.
As always, it is the implementation which is the key. GST, which was touted as the single biggest reform in indirect taxes since independence, is still fraught with numerous challenges because of the way the law was conceived and implemented. However, if the transparent taxation scheme is implemented well, it could be a game changer; let us see how.
As the name suggests, the scheme removes the physical interaction between the actual Assessing Officer (AO) and the taxpayer. For the taxpayer, it is only the National e-Assessment Centre (NeAC) which will be the contact point and all correspondence will take place between the taxpayer and the NeAC. The NeAC will, in-turn, allocate the case based on an automated allocation system to an Assessment Unit (AU) under the charge of a Regional e-Assessment Centre. The AU can then seek assistance of other specialized units i.e. the Verification Unit (VU) and Technical Unit (TU), for the purposes of assessment. The scheme also has an in-built mechanism of a review of the order by a separate Review Unit (RU).
Coming to the merits of the scheme, firstly, the waiting time at the tax office is going to be a thing of the past. Secondly, the taxpayer is not exposed to the whims and fancies of the Assessing Officer (AO). Thirdly, what this scheme is going to do is to increase the quality of the assessments manifold. To expect one AO to do a quality assessment was never possible. Imagine an AO who has spent five years in an exemption ward and is now transferred to a corporate ward and being asked to complete 100 assessments in a time-bound manner. It is impossible for such an AO to do justice to the assessment proceedings and the orders that were passed were a testimony to that fact. However, now with the support of the technical unit, the verification unit and the review by the review unit, the AO can actually do a quality assessment. Fourthly, for the taxpayer, it gives the confidence that the response being submitted by the taxpayer is considered by an independent specialized unit set up for that purpose. Fifth and the most important, the mechanism of a review by the RU gives comfort that the order being passed has been reviewed thoroughly and would not have any frivolous additions. The above aspects to my mind are going to change the rules of the game.
The whole assessment process from being person driven now becomes process driven. One must remember that for every process to deliver quality output, the input for that process must be of a high standard and quality. Accordingly, it becomes imperative for taxpayers to ensure that what they are submitting to the NeAC in terms of their response is not garbage, because if you give garbage, you will get garbage. The drafting of responses to queries raised by the NeAC is now going to be critical. Therefore, the taxpayers and their authorised representatives will have to learn these new skills of drafting in a manner that their response speaks for itself.
The downside of this scheme is that it could get more intrusive and investigative as there would be specialized units looking at the whole assessment process which, in turn, could lead to an increase in appellate proceedings. The other aspect to be noted is that assessment proceedings are quasi-judicial proceedings and to let the authorities decide whether the case merits an opportunity for oral submissions is not correct. It is a right of the taxpayer to be heard when an addition is being proposed to be made and experience shows that mere written submissions, no matter how good they may be, cannot substitute a face-to-face/oral hearing. Finally, the whole aspect of service of notice on the registered account of the taxpayer on the portal, through emails and messages, is bound to raise disputes. There will no doubt be teething troubles on the roll-out of the scheme and, therefore, the tax authorities should exercise restraint before imposing penalties for non-compliance.
To end in a lighter vein, I hope that what is being claimed as a faceless, fearless and painless process does not become a painful exercise both for the tax authorities and the taxpayer.
Sachin Vasudeva is a practising Chartered Accountant.