USD47bn Stuck In Indian Tax Appeals System

by Mary Swire, Tax-News.com, Hong Kong

18 August 2010

In a report on the tax appeals process, which has been tabled in the Indian parliament, the comptroller and auditor general of India (CAG) has decried a tendency in the Indian income tax department to “opt for appeals even when it is on a weak wicket”.

The report said the proliferation of appeals was encouraged by lawyers, and assessing officers were failing to “judge a case on its merits and save the system from the strain that weak cases place on it.”

The end result, according to the report, was a “staggering” INR2.2 trillion (USD47bn) of tax claims stuck in the appeals procedure, almost enough to cover a year of the government’s revenue deficit. 48% of the demands issued in the period 2006-09 remained uncollected, of which 45% were under appeal and 22% related to unpaid assessments after an appeal.

The CAG also criticized the lack of accuracy in the execution of appellate orders which led to mistakes amounting to INR14.6bn in 385 cases, as described in the report.

The CAG recommended that the Income Tax department create a separate dispute resolution mechanism for small taxpayers in order to expedite their cases. Differentiating corporate disputes from the smaller ones would, the report said, help to clear the logjam of appeals and enable a greater focus on big ticket transactions.

The CAG noted that the introduction of the Direct Taxes Code would simplify the process of appeal settlement, but the government needed to address holes in the Income Tax Act in order to avoid linking them in with the new Tax Code.

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