The Tax Administration and Reform Commission (TARC) has suggested reintroducing the Fringe Benefits Tax (FBT) and Banking Cash Transaction Tax (BCTT) to widen the tax base, minimising various tax exemptions, and staying away from amnesty schemes as these cause inequity among taxpayers.
In its third report submitted to the finance ministry, the panel headed by Parthasarathi Shome said unlike earlier even legislators and government officials should be kept under the purview of FBT, which was first introduced in 2005 by then finance minister P Chidambaram. Both FBT and BCTT were unpopular taxes and withdrawn before the general elections in 2009.
“A good tax that had the potential to reduce tax evasion and collected Rs 6,000 crore annually in revenue had to be abolished due to lack of horizontal equity and commensurate pressure from powerful lobbies who paid FBT,” the report said. It added BCTT, which was introduced in 2005 to track unaccounted money, should also be reinstated, as there is no instrument at present that captures details of cash withdrawals from bank accounts, other than savings accounts.
The report also suggested taxing farmers with large land holdings. It said against a tax free limit of Rs 5 lakh on agricultural income, farmers having income above much higher threshold income, such as Rs 50 lakh, could be taxed. It recommended that wealth tax base be increased by including intangible financial assets in the base while considerably raising the threshold and decreasing the wealth tax rate.
The Commission said the finance ministry should look at widening its tax base as more than 50 per cent of registered central excise taxpayers are not filing returns. Only 33 per cent of registered persons under service tax filed returns in 2012-13 and the number fell short of the previous year’s figure by approximately 1 lakh. It noted unanticipated introduction of the Negative List may have led to the drop.
There is a gap in the number of corporate tax payers registered with the I-T department vis-à-vis the number of working companies registered with the Registrar of Companies even though all of them are legally required to file returns mandatorily.
“The tax base is not commensurate with the growth in both corporate and individual incomes in recent years that reflect the growth in the economy. The CBDT should comprehensively identify reasons for the widening gap between PAN card holders and actual number of taxpayers,” it added.
The Commission said TDS coverage should be expanded to capture more and more transactions, especially those that involve large amounts of cash but remain outside the tax net. It said exemptions and deductions based on area and industry should be minimised, if not done away with.
The report said the revenue boards should move towards multi-year audits from the current single-year audits and the frequency of audits should be determined by risk assessment and compliance behaviour of the taxpayers and the availability of resources for audit.
On transfer pricing disputes it said, the CBDT should issue standard positions on specific issues as guidance to transfer pricing officers to help ease uncertainty and litigation for taxpayers.