Details of Faceless Assessment and the Problem of Tax Arrears Disclosed

The proposal of the introduction of faceless appeals against the tax evaluation cases has to lead to a lot of commotion. There is an apprehension in the tax officials that replacement of the traditional system with a faceless system will lead to many logistical problems.

Even the tax consultants fear that the online system of faceless appeals might lead to extra demand from the officers as it would be difficult to explain any case, just based on electronic correspondence exchanges only. Tax committees might get overburdened and more disputes could arise, defeating the purpose of creating a tax-friendly and easy mechanism for settling tax assessments.

Details of The Online Faceless Assessment System

The online faceless system is a laudable achievement of the government, but getting everything done in one stroke can create a lot of turbulence as the majority of the taxpayers neither keep complete records and nor is everyone comfortable with the online platform for the settlement of disputes.

A hybrid approach would be a better option at least till the time when the taxpayers, consultants, and officials all get confident of the online system and the system becomes glitches and bugs free.

It is easier to use the online and faceless system in the first stage, but if the decision arising activates another appeal, then that needs to rise it to a more counseling procedure which will be overseen by a team of senior officers, or else it would add up to the huge amount of tax arrears which are built up in so many years.

Why there are Tax Arrears?

The system of collection of the due amount is very weak and leaky, leading to an increase in tax arrears and it needs to be rectified urgently, especially in 2020 when it is clear that revenues are going to fall sharply. Due to the poor scrutinizing of the administration’s tax collection system, the percentage of tax arrears never came down.

The arrears are more pronounced in the case of direct taxes, which are increasing with each passing year as per the data available for the last five years. The arrears in the direct tax just doubled in five years. But the indirect tax arrears reined in during the same period. The policymakers and the administrators have to examine as to why there has been a contrast result in direct and indirect tax arrears collection.

The simple argument that will be given would be that direct taxes are prone to more disputes and therefore the arrears leading to IT or corporation tax get more difficult to clear. Even with tax arrears with no dispute, the direct taxes’ performance has been inferior comparatively. 

During 2013-14 and 2018-19, the undisputed direct tax outstanding amount had increased from 10% to 12%. During the same period, the undisputed indirect tax outstanding amount had come down from 3% to 1.5%. Therefore the problem is about collections more than disputes of direct taxes.

Even the non-tax revenue arrears of the administration are very weak. As per data, it was 55% during 2013-14 which spiked to 113% in 2018-19.

Overall there is a need to create a more careful budget system of the revenues and also, it would not be a very wise decision to get into the new online tax filing system altogether, as it only seems like increasing the cases of disputes and also increase the soaring tax debts of the administration.