First Report of the Tax Administration Reform Commission (TARC)

The Government had constituted Tax Administration Reform Commission (“the TARC”) headed by Dr. Parthasarathi Shome, in August 2013, to suggests core reforms to the tax administration set-up in the Country. The TARC has now submitted a report dated May 30, 2014 called the “First Report of the Tax Administration Reform Commission”. The said report makes several critical and far-reaching suggestions which are intended to radically change the working of the Income-tax and other Revenue departments.

One of the important ‘fault lines’ identified by the TARC is that there is extreme ‘risk aversion’ amongst the officials with the result that it leads to infructuous tax demands and the filing of frivolous appeals. The TARC has also come down strongly on the rude and arbitrary behaviour of officers and their total lack of accountability which leads to non-compliance of tax laws.

Some of the key recommendations of the TARC are as under:

• The Department should treat the taxpayer as a ‘customer’ and have ‘customer focus’ in its attitude.
• The two Boards i.e. Central Board of Direct Taxes and the Central Board of Excise & Customs must embark on selective convergences immediately to achieve better tax governance, and in next five years, move towards a unified management structure with a common Board for both direct and indirect taxes, called the Central Board of Direct and Indirect Taxes.
• The post of Revenue Secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards. This would empower the tax departments to carry out their assigned responsibilities efficiently.
• An Independent Evaluation Office (IEO) should be set up to monitor the performance of the tax administration, promote accountability, evaluate the impact of tax policies and assess all factors that affect tax administration. IEO will report to the Governing Council so as to ensure its independence.
• A Tax Council should be set up to develop a common tax policy, analysis and legislation for both direct and indirect taxes. The council will be headed by the Chief Economic Adviser of the Ministry of Finance.
• Both Central Excise and Service Tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted under the CENVAT Credit Rules.
• Retrospective amendment should be avoided as a principle.
• Hearing in all tax cases by personal presence should be avoided and data can be sought through an e-system. Personal hearing should be sought only in complex cases.
• Appeals to the High Courts and the Supreme Court should only be on a substantial question of law.
• On disposal of a case by Supreme Court/ High Court and if the judgment is accepted by the Department, an instruction should be issued to all authorities to withdraw appeal in any pending case involving the same issue.

To view the complete report, please click on following link:

http://www.finmin.nic.in/the_ministry/dept_revenue/First_report_TARC.pdf

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)