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Easwar Committee: Less Government, More Governance!

Published on Wed, Jan 20,2016 | 17:52, Updated at Wed, Jan 20 at 17:52Source : 

By Vishal J Shah, Partner, PwC India

At the recent launch of the Start-Up India campaign, the Prime Minister began his speech asking the budding entrepreneurs as to “What the Government should not do” so that they can flourish and achieve more.  Should the PM pose a similar question in the context of simplifying the Income tax regime, the draft Easwar committee report on the first set of recommendation can be the perfect answer.  

Set up with the objective to simplify the provisions of the Income Tax Act as also reduce litigation and ease doing business in the country, the Committee’s first set of recommendations provide several pragmatic baby steps in that direction.  The recommendations range from a set of substantive arrangement of the law to reduce avoidable litigation to rationalizing the myriad provisions of the Act and undo multiple short-sighted outlier amendments of the past and finally, a set of suggestions easing the procedural requirements for businesses, particularly, the SME sector which can be the torch bearer of the economy in terms of generating jobs and providing the much needed impetus.  All of them being suggestions, in one way or other, addressing where and what the tax administration should not do.  

It is truly a very workmen-like report (and not big bang) addressing several pain points for an honest taxpayer and provide a level-playing field, and full credit to the Committee for taking this head-on.  It underlies a focus on the Modi mantra – Less Government, More Governance, in many ways.  Firstly, reduce discretion of the Assessing officer on interpretation issues, for instance characterization of income from sale of shares as business income or capital gains or applying Section 14A vis-à-vis dividend income, to reduce potential litigation.  Secondly, ease compliance for the SME / individual taxpayers by enhancing threshold for mandatory maintenance of book and audit.  Thirdly, widen the ambit of an easy presumptive tax regime for small businesses and professionals.  Fourthly, a host of recommendations on procedural and compliance provisions to reduce hardship for the honest taxpayer and reduce the time spent by him at Aayakar Bhavan (tax office).  Timely disposal of taxpayer’s appeals / rectification requests.  Rationalise TDS provisions and across the board reduction of rates and enhancement of trigger thresholds .. hopefully, it will be less tedious. Losing the count here, but cannot ignore mention the level playing field to enable getting refunds in a timely manner, with accountability (by way of higher interest) on the tax department for failure to do so.  

While the convergence of the accounting standards to IFRS (IND-AS) would surely bring in far reaching changes in the accounting and financial reporting, the convergence thereof with the tax rules seems unclear.  The key issue from a taxation standpoint is whether the tax reporting would continue as per the current Indian GAAP or IND-AS accounts should be mandated for tax filings as well.  While the Committee does suggest status quo, this may imply that the taxpayer may have to maintain separate set of books.  A medium term objective should be that the taxpayer maintains single set of accounts but specific adjustments are identified within the law itself to eliminate the notional fair value adjustments under IND-AS.  A more detailed study is clearly called for here and soon.  

Off late, tax has hit the headlines in India many times, albeit for wrong reasons.  Amid the big talks of reforming the tax regime, the Easwar committee report provides small yet concrete and pragmatic actionable steps, and with more of such to come during the remaining tenure of the Committee, can truly significantly contribute to the advent of a real non-adversarial tax regime of the future.  As they say, the proof of the pudding is in the eating.  With Budget 2016 on the anvil, over to you FM to walk the talk.

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