The budget is expected to announce several direct and indirect tax reforms including further simplification of income-tax laws to encourage voluntary compliance and widening the tax base, and which involve more use of technology, people aware of the development said on condition of anonymity.
The finance ministry has been working on simplifying archaic income-tax laws and rationalising tax rates in line with recommendations of the task force on the Direct Tax Code (DTC), which submitted its report on August 19, 2019, they added.
“Suggestions of the task force are being considered on merit,” one of them said. Finance minister Nirmala Sitharaman told the Rajya Sabha on December 5, 2019, that the DTC was “under examination”.
Besides simplification of tax laws, the task force also proposed lower tax rates, particularly personal income-tax rates, to enlarge the tax base. The government constituted the task force in November 2017 to review the existing income-tax legislation and to draft a new direct tax law in consonance with the economic needs of the country.
“Both internal and external technology experts are also working in this direction; the purpose is to further simplify the taxation system for voluntary compliance. This is also proposed by a group of economists, whom the FM consulted last month,” a second person said.
On December 20, 2019, Sitharaman held a pre-budget consultation with prominent economists, who suggested further simplification of direct and indirect tax regimes, including introduction of the Direct Tax Code, the person said. The meeting was attended by Rathin Roy, director, NIPFP; Shekhar Shah, director general, NCAER; Abheek Barua, chief economist, HDFC Bank; Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, and Ajit Mishra, director, Institute of Economic Growth, among others.
Announcements related to several indirect tax reforms, including the Goods and Services Tax (GST), are expected in the Union Budget on February 1, the people mentioned above said, although these changes will be made by the GST Council and not the ministry.
“For further improving the performance of GSTN [GST Network] filing portal on permanent basis, several technological measures are being worked out with Infosys and will be in place by April this year,” a third person said.
Some tax assesses had faced problems in getting one-time passwords (OTPs) and other glitches in filling their GST returns.
In order to help GST assesses, the government on Wednesday allowed taxpayers to file their GSTR-3B Returns in a staggered manner. The monthly return, filed on the twentieth day of every month, captures summarised details of outward and inward supplies by a taxable entity.
Accordingly, taxpayers having annual turnover below Rs 5 crore in the previous financial year are divided in two categories. About 4.9 million tax filers from 15 states and Union territories can now file GSTR-3B by the 22nd of every month without any late fees. For the remaining 4.6 million taxpayers from the 22 states and Union territories the last date would be the 24th of every month, the third person added.
Sachin Menon, partner and national head of indirect taxes, KPMG in India, said, “E-invoicing is one of the measures to simplify the GST regime, and once it is implemented the system could be further simplified by filing one return with two annexure which are auto-generated.”
Pratik Jain, partner & leader, PwC India, said that the government has already taken several measures to simplify the taxation system, but that it could be improved further. “Bulk of the time for the industry goes in reconciling the vendor invoices with their own purchases records. They are at a risk of losing input credits if vendors do not report the transactions, which very often they don’t have control over.”
“With e-invoicing, to some extent this might be easier but government needs to explore some alternative to this, especially for smaller tax payers. One of the ways could be asking the purchaser to pay GST on behalf of the vendors. The other way could be to do away with this process for accredited vendors. Also government could explore allowing aggregators like online platforms to pay tax on behalf of small vendors, just like they have done for online cab aggregators,” he said.
According to Atul Pandey, partner, Khaitan & Co, “Government is looking to consolidate and simplify the laws relating to direct tax structure through a new Direct Taxes Code (DTC). It is expected that DTC will reduce tax rates and address the requirements of the economy. We also need to see whether DTC will help in bringing down the substantial number of cases where government tax administration is the biggest litigator.