India has seen multiple tax amnesty programmes, starting with the “Tyagi scheme” of 1951 and the “sixty-forty scheme” of 1965. There was even a disclosure of wealth scheme (1985). Some of these, notably the Voluntary Disclosure of Income Scheme (VDIS), 1997, and Vivad se Vishwas, 2020, have shown satisfactory efficacy in persuading the taxpayers to report unreported/under-reported income, and resolve the disputes by paying reduced penalty or tax amount. However, these schemes have also constantly come under flak for the “moral hazard” involved in them and the alleged tacit encouragement they provide for non-compliance.
The legal tenability of such schemes, however, has been upheld by the courts, on the grounds that economic legislation is largely the exclusive domain of the legislature. As the moral and legal debates are thus going in a certain direction, the fact remains that amnesties over decades haven’t really helped reduce pendency of tax disputes and litigation. Also, it seems their utility is increasingly on the wane, partly due to increased frequency of such gestures. The Budget FY24 unveiled Direct Tax Vivad Se Vishwas 2.0 and a goods and services tax amnesty, both of which apparently haven’t made much headway since. By the way, there has lately been a crescendo of demand for a new Customs amnesty.
The backlog of appeals at various layers of tax litigation/dispute resolution is not only huge, but growing even in proportion to the tax revenues. At last count, over half a million direct tax cases were lying with the first appellate body — the commissioner of I-T appeals (CIT) — itself. It typically takes about five years for a case to proceed further from the CIT level. In a vast number of cases, especially where the stakes involved are more than Rs 5 crore, the disputes escalate to the Supreme Court, and the resolution takes as long as 15 years on average. Direct tax cases locked in disputes jumped from Rs 20.8 lakh crore or 8.9% of the gross domestic product (GDP) in 2021-22 to Rs 31 lakh crore (9.6%) in 2023-24. In the run-up to Budget FY26, tax experts have therefore put this issue at the forefront of their expectations from it, in the form of policy steps and robust institutional remedies.
True, at any given time, tax disputes are bound to exist, and litigation as a means for resolution is inevitable. But unresolved disputes in direct taxes alone being over 60% of the size of the Union Budget is too high and unacceptable for a country that has limited fiscal resources and a low tax-GDP ratio. At the same time, the issue of private capital getting blocked under tax disputes is eminently avoidable when all government policies are ostensibly directed at raising the investment rate. Most tax disputes are finally settled by the judicial authorities in the taxpayer’s favour. Given this, the rule that 20% of the outstanding tax demand must be deposited with the I-T department before seeking a stay on it from the appellate tribunal appears to cause locking of working capital. A less aggressive and more pragmatic approach to tax assessment is called for. Field formations of the tax department must be sensitised to refrain from blind pursuit of revenue maximisation. The laws could be tweaked to facilitate settlement of disputes up to certain thresholds at the assessment stage itself, with a formal peer review mechanism.
Source from: https://www.financialexpress.com/opinion/tax-disputes-indias-struggle-with-amnesty-schemes/3725411/
