Tax litigation has a lot of impact in the economy of a nation. This is due to the fact that Income Tax Department is probably the biggest litigant but in reality loses 85% of its cases, according to the study reports of Economic Survey.
According to the survey, in the last fiscal year, there were about 1.37 lakh direct tax cases and 1.45 lakh indirect tax cases filed in the Income Tax Appellate Tribunal and different high courts and even the Supreme Court. In monetary value, these huge number of cases amounted to about nearly 4.7% of GDP.
Considering the rate of success of the income tax department at all three levels of courts of appeal, it is as low as 30% in both direct and indirect tax litigations. This rate remains undeterred at every level of judiciary hierarchy thereby making the tax department one of the highest litigants.
As for the outcomes of these cases, more than 65% of these cases were unambiguously lost resulting in a huge loss of revenue for the nation through direct income and through legal expenses and lawyers’ fees.
Highlights of the survey
The highlights of Economic Survey will make the importance of lawyers Representing for Tax Litigation in India somewhat clear.
The survey found that the persistence of the government with litigation in spite of the high rates of failure is increasing the workload of the judiciary systems. This means it is adding to the number of pending cases and delay in the outcomes.
The survey also found that several important government infrastructure projects are stalled due to the various orders passed by the three levels of courts.
It is also found that the Supreme Court has a tendency to entertain appeals made directly by any tribunal or court through Special Leave Petitions or SLPs. This rate increased from 25% to 40% within a span of eight years starting from 2008.
All these factors have affected and altered the nature of functioning of the court eventually resulting in high pendency. However, the survey points out that if the judiciary had dedicated courts for this subject matter it would have resulted in profound benefits and impressive results, thereby relieving the stress and shortage of the nation’s economy.
The issues for litigation
No matter how meticulously the top indirect tax firms in Delhi work, there are several issues that result in such frivolous litigation lying pending. These issues are:
- The inability of the officer to take an informed decision not to file an appeal
- Fear and apprehension of opposing administrative action
- Lack of information
- Inadequate knowledge on the judicial precedents
- The existence of a large number of loopholes in the taxation policy.
All these have resulted in a large number of impairments to the economic growth of the nation.
The diverse implications
Thanks to the government’s stringent policies more and more people are now encouraged to Filing Corporate Tax returns in India on time, but it is the rising number of appeals that are having a diverse effect and impactions on the country’s economy. It leads to a large number of pendency and increased workload of the judiciary. Apart from that, other implications on the economy include:
- Stalled projects
- Crumbling infrastructure
- Mounting legal costs
- Reduced investments and
- Contested tax revenues.
The mismatch between the verbal interpretation of the law and intent of the government is to blame for this. There is a lack of transparency, and due to the administrative incapability, the growth of industries is hampered. It also causes a delay in the collection of revenue through potential tax payable to the government and this ultimately impacts investment in diverse sectors of the nation’s economy.
Implications on industry
The high rate of pendency has also had an adverse effect in the sectors as well. The different issues faced by the industrial sector include:
- Difficulty in corporate tax planning due to the unpredictable taxation rules and policies especially in retrospective taxes
- Lack of administrative support
- Inefficiency and lack of a proactive approach
- Lack of a proper and effective grievance redressing mechanism
- Issues with taxation on intangibles assets such as intellectual property, branding exercises, and advertising
- Transfer pricing
- Classification of income
- Fees and royalties for technical services
- Concerns regarding indirect transfers and
- The slow procedure of dispute resolution.
All of it has resulted in slow growth in the business and industry sector which has, in turn, led in a downward movement of the country’s economy.
Concerns for the regulatory bodies
As for the regulating bodies, the impact and issues faced have forced them to think of alternative means and remedial measures to reduce the pendency rate and provide faster results. It is believed that the Income Tax Appellate Tribunal, ITAT, can perform better if the number of benches or judges dealing with such a huge caseload is increased.
Apart from that, prioritizing the cases and scheduling the workload precisely will also ensure faster results. Therefore, rules must be framed to determine how each case will be prioritized.
Changes in policy strategy and tax consultancy services must be made to improve the tax environment. This can be done if the qualitative aspects and the different factors influencing the rulings are considered.
Ways to revamp tax litigation
Experts suggest a few ways in which tax litigation can be minimized, and this involves much more than encouraging people for direct tax planning. In brief, the suggestions are:
- Voluntary Tax Litigation Settlement – This will reduce workload as cases will be settled through negotiations within the specified time limit.
- Levying cost for ineffective litigation – If fees are levied against the appellant or respondent, it will minimize unnecessary appealing.
- Assessment in public interest – Public interest is needed to be pursued at the assessment stage by the Assessing Officer. It will result in the proper application of tax laws.
However, it is a long way ahead, and it needs specific policies and roadmap to clear the backlog of tax litigation. Such policies will result in a friendly tax regime that will facilitate business in the country and thereby improve the economy of the nation.