This is authored by Janaki Nair a 3rd year B. A. LLB student in Symbiosis Law School Pune. The following article deals with the system of taxation in India and how the taxpayers navigate around the same topic. It also deals with the problems that taxpayers may face while filing tax returns to the Government.
The taxation system of a country is the system where the Government of a particular country levies a financial charge or some other sort of levy on the citizens of the country. These citizens are known as the taxpayers and can range from individuals to established organizations and businesses. Tax is levied so that the Government can fund its spending and other public–oriented expenditures for the benefit of the public. It is compulsory by almost every citizen and a failure, resistance, or evasion to payment of taxes by any individual or group would result in punishment by law.
Broadly speaking there are two categories of taxes:
Direct Tax: This type is also known as Progressive Tax as the amount to pay increases by an increase in the income of the taxpayer. Direct Tax is the one that is levied directly onto the income earned by individuals as well as corporations. Regarding direct tax, the taxpayer cannot shift it towards any other person or group and therefore has to pay it by themselves. It is said to help reduce inflation and inequalities in society. Payment of Income Tax is the most well–known direct tax in the world.
Indirect Tax: This type is also known as Regressive Tax as everyone, regardless of their economic status, is expected to pay the same amount of tax to the Government. It widens the gap of social inequality that is already big in India. The rich get richer whereas the poor get poorer. Indirect Tax is imposed by the Government on the sale and business of goods and services. The seller of these commodities and services can shift the burden of paying the tax to another individual or group who becomes the buyers in the transaction. An example would be the recently introduced Goods and Services Tax (GST) of India.
General Rights of Taxpayers
Tax payment is an extremely vulnerable and crucial thing to inculcate into the minds of the citizens because there are so many ways in which it could go wrong. The authority would need to develop incredible amounts of trust for the citizens to be completely okay with paying their income to the Government for a better life.
Taxpayers therefore also have some general basic rights under the numerous rules and regulations of the country. They are as below:
- Right to Legal Certainty: According to this, tax authorities would be restrained from arbitrariness by protecting taxpayers from them. Furthermore, this right helps an individual taxpayer to predict the obligations and liabilities that he may have while also ensuring him by making him aware that the rights cannot be changed arbitrarily. This right, therefore, protects a taxpayer against forceful and coercive methods and also gives him the right to appeal in case of any violations.
- Right to non-retroactivity: If tax payment were retrospective in nature, it would violently violate the rights of the taxpayer. Therefore, the country denies the freedom for retroactive changes in tax law in many Indian states. This stems from the fact the rights of these taxpayers consist of the effect that the tax consequences would have on the economic decisions of the taxpayer.
Other than the national laws and regulations that provide some sort of rights to the taxpayers, there are also international conventions of which India is a signatory to that talk about providing taxpayers with rights. These conventions ensure that the people get some form of protection from International law when the domestic law proves to either not provide them with any or sufficient form of protection.
The most important international convention with regards to tax payment is the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR), 1950. Under this, Article 1 of the first protocol on ‘protection of property’ basically states that tax must be imposed only according to the law of the land, the system must serve a valid purpose that is in the public or general interest of the country and that the laws adopted must be reasonable and not further violative of any fundamental rights of the people.
Charter of Taxpayers Rights and Problems
India has time and again produced several charters on the rights of taxpayers of India. However, almost all of them were purely theoretical and had almost no practical implementation. The first Income Tax Charter was drawn up by the Government in the year 1998. Under it, the Income Tax department ensured that they would be dedicated to the commitment provided by the taxpayers by being – fair, helpful as well as efficient in their dealings with any form of grievances. They had also stated that the Charter would acknowledge any communication from the taxpayer at the time of complaint–making (the latest being within 7 days of complaint) and furnish replies the latest within 30 days. Further, they ensured that it would redress and resolve all complaints within 30 days of complaint and all of them will be kept confidential.
However, these promises were later held to be empty as a review of all the taxpayer Charter programs by the Central Government through the first 15 years of the 2000s showed that the Charters were extremely poorly drawn up and implemented in the states.
It was realized that the major issue regarding this failure in implementation is because – the absence of any statutory backing of the Charters and lack of awareness of the Charter by the taxpayers. Due to the above two reasons, the Charter of Taxpayers’ rights did not have any impact on the tax-paying community.
Therefore, an important step had been taken by the Indian Government in August 2020 to rebuild the lost trust of the taxpayers and also to ensure that the rights and obligations of the taxpayers are well looked after by an accountable Government. Therefore, the Charter was enshrined under Section 119 A of the Income Tax Act of 1961. Under the section, taxpayers would be treated as true customers, will be made aware of every information as accurately as possible, confidentiality shall be maintained, and the authorities would be held accountable for everything. Taxpayers may also approach any department for redressing their grievances and complaints.
To conclude, the main purpose behind the latest Charter and its subsequent enshrinement into a statute was to hold both the taxpayers as well as the authorities liable for their actions before the law. Accountability fosters more responsibility. Trust and transparency can be strongly established when the base is strongly implemented. Instead of passing orders merely for tax collection, it will only be met with disdain and not acceptance. Therefore, the need of the hour is to ensure that proper administrative work is set up that allows for smooth and fair functioning of the tax system.
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