Budget 2020: The industry is expecting Finance Minister Nirmala Sitharaman to announce an amnesty scheme for disputes related to direct tax in line with the Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019, aimed for resolution of legacy indirect tax disputes.
An amnesty scheme would serve twin purposes - de-clog the judiciary of tax disputes and give a much needed revenue boost to the government exchequer.
Around Rs 5 lakh crore is stuck due to direct tax litigation alone at income tax tribunals, high court and Supreme Court as on March 2017. At the commissioners (appeal) level, disputes involving Rs 6 lakh crore were pending as on 31 March 2019.
"The Dispute Resolution cum Amnesty Scheme does seem to be one shot solution for the Government. It will not only garner much need tax revenues but also reduce tax litigation," says Amit Singhania, partner, at law firm Shardul Amarchand Mangaldas & Co.
However, he says the success of the scheme will depend on how much the government wants to forgo in interest and penalty apart from providing immunity.
The Sabka Vishwas Scheme launched last year for resolution of indirect tax disputes fetched the government over Rs 35,000 crore after it resolved 1.61 lakh cases involving over Rs 80,000 crore tax dues.
The scheme waived up to 70 per cent of the tax dues and 100 per cent of interest and penalty. If tax dues are up to Rs 50 lakh, the scheme offers to waive 70 per cent of the dues. If they are over Rs 50 lakh, the waiver will be 50 per cent. Besides, around 60 per cent dues, which are recoverable as arrears (matters have attained finality), will be waived if the tax involved is up to Rs 50 lakh and 40 per cent if the amount involved is more than Rs 50 lakh.
Dr Suresh Surana, founder, RSM India, a tax consulting firm, says: "The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 has been a path breaking scheme for resolution of indirect tax disputes. There is a huge backlog of litigation under the direct tax regime as well and similar scheme will bolster the tax collection and improve the investment climate."
The government has been trying to reduce the backlog of pending tax disputes in the past by increasing the monetary limits on the tax department filing appeals before ITAT/Courts. This has resulted in reduction of tax demands involved in appeals from Rs 6.38 lakh crore in March 2018 to Rs 5.71 lakh in March 2019.
But the announcement of an amnesty scheme in the budget can reduce the number of pendency cases sharply.
Naveen Aggarwal, Partner - Tax, KPMG in India, says: "Addressing the long-pending direct tax cases should become a top priority and the government should look at introducing an amnesty scheme, similar to what was rolled out for service tax and excise disputes."
He, however, also expects the government to look at other alternative mechanisms such as mediation or conciliation, which will help speed up the resolution process and drive certainty.
The new direct tax code apparently has talked about an alternative mechanism of resolution of tax disputes. As per the tax code, if a person gets a (tax) demand order on account of 20 items, he can opt to pay the tax on ten items and get exemption from paying any interest or penalty.
The assessee can go for a negotiated settlement if he does not agree on an item. The negotiation will happen on the basis of how many cases the department wins in appeals. Say, if the department has on an average won 20 per cent cases in appeals, the department would ask the assessee to pay 20 per cent of the demand and settle the case. If a negotiated settlement is reached, the assessee will only have to pay the tax and interest and no penalty.
If one does not agree with everything (the tax department disputes), he can part agree and part litigate. Even if the assessee loses in appeal, he can still have an opportunity to settle the case.
There is also expectation that the budget might give a go-ahead to a similar dispute mechanism.
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