Speakers in the session on dispute resolution and tax planning came up with some answers to the question of how to reduce the number of tax disputes in India, including giving the tax authority more autonomy and introducing performance management techniques for tax officials similar to those used in the private sector, and less emphasis on revenue targets for officials.
Sudhir Kapadia, of Ernst & Young, who chaired the panel, said the tax authorities need to ask themselves: what are our objectives? How do we want to use the powers at our disposal to make business comfortable?
Amit Rana, vice president of tax for GE in India, said a high amount of litigation benefits nobody. It means uncertainty, time, effort and cost for taxpayers and tax administrators and that the courts are overburdened, and it affects a country's investment climate
Rana said other tax executives had told him that they did not think there had been any benefit for taxpayers from the new Dispute Resolution Panel system.
The GE executive said the DRP had structural and legislative issues, such as their independence and the fact that the revenue authorities have no right to appeal DRP decisions. Each panel consists of three tax commissioners though they have played no part in the original assessment of the taxpayer's liability.
“The underlying thread is a lack of accountability,” Rana said.
The tax director said the revenue authorities should bring in a performance management system, which could include a business plan that set out, for example, their mission and values, and annual reports, such as those produced by the tax authorities in Australia, the US and Canada. He also said the effectiveness of revenue collection, for example, the cost of bringing in taxes and administering the system, and the effectiveness of audit, such as amounts refunded to taxpayers, should be looked at.
Change in accounting
Rana's other ideas included a change by the revenue authorities in accounting for tax services by moving to an accrual basis of accounting, which would mean the government would not recognise revenue until it was accrued.
And he said the revenue authorities should become semi-autonomous to give management more freedom on salary and hiring, and link their budget to revenue collection, which is what happens in Spain and Singapore.
Bela Seth Mao, of Shell, said tax officers in India are accountable but in a different way. She said questions that need to be asked are how much it takes to resolve a dispute and when a demand is raised, how much is recovered.
Efficient tax collection
Geoff Lloyd, director of dispute resolution for HM Revenue & Customs in the UK, agreed that tax officials had to be accountable but that this had to come from the top. He said HMRC had a business-driven approach aimed at collecting the right amount of tax at the right time for the least cost.
Lloyd said that though HMRC had a collaborative approach to settling disputes, that did not mean being “warm and cuddly”. The objective was still to get the right result more efficiently. The tax authorities' policy is set out in its Litigation and Settlement Strategy, which focuses on non-confrontational solutions. However, where HMRC believes it has a strong case, it seeks to recover all the tax and penalties or to take the case to litigation.
He added there were about 17,000 disputes between HMRC and large businesses every year and 300,000 with smaller taxpayers. About 3% were subject to review by the tax authorities and about 1% were appealed to the First-tier Tax Tribunal, the first level of tax litigation in the UK.
The official said HMRC had started a pilot project on settling disputes through alternative dispute resolution, particularly mediation. He added that the tax authorities and taxpayers favoured a method that allowed a mediator to facilitate a result rather than come up with another opinion in the case.
“ADR is always going to be a minority sport [in the UK]. It will not be a substitute for the collaborative dispute resolution approach,” Lloyd said.
Vinod Mangotra, a retired tax commissioner, now a senior adviser to KPMG, suggested three ways that the Dispute Resolution Panels could work better: the panels should have a manageable workload, which means no more than four hearings a day, members should be full-time and they should be “well versed” in international tax and transfer pricing.
Another panellist said that the revenue authorities had to look again at how it does things. Satya Poddar, of Ernst & Young's policy advisory group, said key tasks for them had to be setting goals, performance management and reporting, and business process redesign.
“The government has to be ruthless in eliminating processes that drive up compliance costs and are no benefit to taxpayers,” he said.
Poddar said the Law Ministry is believed to be drawing up plans to reduce litigation, not just tax cases.
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