Take taxpayer feedback, be sensitive to the honest: parliamentary panel to tax authorities

New Delhi: Tax authorities should be “sensitive” to the hardships faced by honest taxpayers due to wrong or inflated demands and take feedback from the public to improve faceless assessments, the Parliamentary Standing Committee on Finance said in a report submitted to the lower house on Wednesday.

The panel also told authorities to review “fictitious tax demands”, which inflate the actual tax arrears that the income tax department could realize.

The Committee led by the Bhartiya Janata Party’s Bhartruhari Mahtab expressed concern over the high figures of purported tax arrears and said there is a pressing need to review the tax assessment system to make it more efficient in collection of taxes, keeping in view the ground realities.

Tax arrears of more than Rs. 48.7 trillion—made up of Rs. 43 trillion of direct taxes up to 14 February this year and Rs. 5.65 trillon of indirect tax up to the end of December 2024—are to be collected, the report showed.

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“The Committee are of the view that while genuine demands should be strictly collected, the tax authorities should also undertake a thorough introspection of the existing tax assessment system and remain sensitive to the hardships faced by honest taxpayers due to erroneous or inflated tax demands. The Committee, therefore, recommend that, since all the tax records have been digitized, it is high time to take decisive interventions, including writing off demands/imposing moratoriums, to reduce and trueing up the huge backlog of demand arrears in a time-bound manner,” the panel said.

Revenue and tax officials informed the panel that in the case of direct taxes, recovery of arrears was affected by factors like assessees not being traceable or not having enough assets for recovery and tax demands having been stayed by courts or appellate tribunal.

Indirect tax issues

In the case of indirect taxes, comprising Goods and Service Tax, central excise duty, customs and service tax, many of the traceable parties were unable to pay. Also, in several cases, the units or their creditors have moved the National Company Law Tribunal (NCLT) for bankruptcy resolution.

The committee said the Income Tax department’s faceless e-assessment scheme, rolled out in 2019 and a similar appeal system introduced in 2020, have, to a great extent, met their goals of improving the ease of tax compliance, ensuring fairness and minimizing litigation. But there was a need to address the difficulties some taxpayers face in online filing and hearings. The panel said that there was a need for corrective measures to improve the faceless eco-system.

“The committee believe that conducting a regular survey to understand the perceptions/experiences/challenges faced by taxpayers in filing/assessment/appeal processes will go a long way in gathering valuable feedbacks for making necessary changes and improvements to the existing system,” the report said.

Standing committee recommendations carry weight and are taken seriously by the government. Although these often influence policy decisions, they are not binding on the government.