Finance Minister Mrs Nirmala Sitharaman in her Budget 2020 speech has proposed to incorporate taxpayer’s charter in the income tax statute, while emphasizing that, “An important aspect of both ease of living and ease of doing business is fairness and efficiency of tax administration. We wish to enshrine in the statutes a “taxpayer charter” through this budget. Our government would like to reassure taxpayers that we remain committed to taking measures so that our citizens are free from harassment of any kind.”
Authors Subham Kumar and Ankita Baid (Chartered Accountant) in their article analyse Taxpayer’s charter as introduced and Rights adopted internationally. They quote “One of the significant reasons for the foreign investors to invest in India being sceptical about tax regime in India. India is considered as one of the most aggressive tax regimes in the world”. The authors sign off stating that, “If Taxpayer's charter is adopted in spirit and coupled with an efficient grievance redressal system, will largely ensure that there are no violations of taxpayer’s rights.”
Taxpayer’s charter – Custodian of Rights?
One of the significant reason of foreign investor to invest in India being skeptical about tax regime in India. India is considered as one of the most aggressive tax regime in the world. Even resident tax payers are wary of dealing with tax department and resort to situation where they have to deal with tax department. In an endeavor to overcome the trust deficit. while increasing tax administration efficiency, Finance Minister Nirmala Sitharaman has proposed a "taxpayer's charter", in the Budget 2020. Aimed at boosting trust between the citizens and the authorities, Section 119A is proposed to be inserted in the Income Tax Act, 1961 (the 'ITA') to empower the Central Board of Direct Taxes ("CBDT") to adopt and declare a taxpayer's charter and issue orders, and directions or guidelines to the Income Tax authorities.
What is a Taxpayer's charter?
Over the past several years, the onus placed on taxpayers have amplified incessantly, with increasingly complex tax systems, additional disclosure requirements, infamous tax hullabaloos, indecisive timelines and aggressive assessments and stands taken by the authorities. In an atmosphere of tax regulation where relentless amendments seem to be made as a new found custom, the Taxpayer's charter seeks to bridge tax department's true authority vis-à-vis taxpayer's trust, rights and liberties. Proposed to be enshrined in the statutes, India is one of the few countries to adopt such a tax administration. CBDT Chairman Pramod Chandra Mody, in a recent interview, said that the charter will be notified very soon and once operationalized, the Charter shall be endowed with a statutory status.
A Charter commonly enumerates the rights and obligations of the Taxpayers while also detailing the scope of authorities' power and timelines the administration shall be required to adhered to. The Tax Authorities shall be duty bound to uphold the rights of the Taxpayers as distinguished in the Charter. It can be referred to as an agreement or a contract at an extensive level between the tax paying public and the tax legislative administrators which clearly articulates the reasoning and objective behind various actions, to reassure accountability, transparency and competence in the tax administration's procedures.
With the objective to develop and encourage a rapport of mutual trust as well as accountability between the Taxpayers and the Income Tax Authorities, a taxpayer's Charter generally aims to ensure that the Taxpayers comply and complete their obligations, while at the same time ensuring that the Income Tax Administrative authorities uphold the rights of the Taxpayers by codifying their duties and clearly defining the scope of their authority.
The various countries that have adopted a Taxpayer's Charter into its system, have faced a debate as to whether it should be legally enforceable or should be merely administrative in nature to be used for the purpose of guidance. The Budget 2020 has proposed to introduce the Taxpayer's Charter with statutory recognition in India, thereby empowering the taxpayers by making it enforceable and legally binding.
This article attempts to take reference from other countries which have adopted taxpayer's charter and their legal sanctity.
An analysis of Taxpayers Bill of Rights adopted Internationally
The United States of America Internal Revenue Service (IRS) had adopted a Federal charter in 2014 that enumerated the rights of American taxpayers in their dealings with the IRS through the U.S. Taxpayer Bill of Rights (TBOR). The following are the Rights as listed in the TBOR:
1. The Right to Be Informed
2. The Right to Quality Service
3. The Right to Pay No More than the Correct Amount of Tax
4. The Right to Challenge the IRS's Position and Be Heard
5. The Right to Appeal an IRS Decision in an Independent Forum
6. The Right to Finality
7. The Right to Privacy
8. The Right to Confidentiality
9. The Right to Retain Representation
10. The Right to a Fair and Just Tax System
Even though the US Taxpayer Bill of Rights is codified within the Internal Revenue Service Code to ensure greater compliance on behalf of the Revenue Service and the taxpayer, it does not codify legal remedies for violations of the enumerated taxpayer rights which defeat the effective implementation of TBOR..
The United Kingdom's Taxpayer's Charter is a statement setting out the rights of a UK taxpayer in relation to the level of service and fairness to expect from Her Majesty's Revenue & Customs (HMRC). Introduced in 2009 and updated in 2016, the Charter has legislative backing in the Finance Act. The UK Taxpayer's Charter also details the obligations expected of taxpayers by HMRC.
1. Respect you and treat you as honest
2. Provide a helpful, efficient and effective service
3. Be professional and act with integrity
4. Protect your information and respect your privacy
5. Accept that someone else can represent you
6. Deal with complaints quickly and fairly
7. Tackle those who bend or break the rules
1. Be honest and respect our staff
2. Work with us to get things right
3. Find out what you need to do and keep us informed
4. Keep accurate records and protect your information
5. Know what your representative does on your behalf
6. Respond in good time
7. Take reasonable care to avoid mistakes
It has various grievance redressal measures in place through judicial review procedures, Adjudicators, Ombudsman, etc. and considered to be a finely drafted and effected charter.
Australia has the Taxpayers' Charter which outlines a mutual set of rights and obligations of the Taxpayer. It enumerates the rights of taxpayers and the service and standards to be expected from the Australian Tax Office (ATO). The Rights are as follows:
1. Have a person of your choice represent you
2. Be treated as being honest except where taxpayers have acted otherwise
3. Have your privacy respected
4. Receive professional service and assistance
5. Have all information about you kept confidential
6. Have access to information which the ATO possesses about you
7. Be provided with useful and accurate guidance
8. Have decisions explained to you
9. Have decisions reviewed
10. Make complaints
11. Receive assistance with complying
12. Hold the ATO accountable
Similarly, the Obligations are as listed below:
1. Be truthful in relation to all information provided to the ATO
2. Keep all required records
3. Take reasonable care
4. Lodge all returns by due date
5. Pay all taxation debts by the due date
6. Be cooperative
However, it is imperative to note that the above Charter does not create any legal rights or backing as it is not incorporated in the legislation.
Canada being one of the few countries to have adopted a charter in the form of the Taxpayer Bill of Rights in 2007, which describes and defines 16 rights. It describes the treatment a taxpayer is entitled to in his or her dealings with the Canada's Revenue Agency (CRA). While it is not an enforceable law, it sets out, the obligations that the CRA imposes upon itself when dealing with taxpayers. It is in nature of an administrative document prepared and adopted internally by the CRA. Following are the rights:
1. Right to receive entitlements and to pay no more and no less than what is required by law
2. Right to service in both official languages - English / French
3. Right to privacy and confidentiality
4. Right to a formal review and a subsequent appeal
5. Right to be treated professionally, courteously, and fairly
6. Right to complete, accurate, clear, and timely information
7. Right, unless otherwise provided by law, not to pay income tax amounts in dispute before you have had an impartial review
8. Right to have the law applied consistently
9. Right to lodge a service complaint and to be provided with an explanation of our findings
10. Right to have the costs of compliance taken into account when administering tax legislation
11. Right to expect us to be accountable
12. Right to relief from penalties and interest under tax legislation because of extraordinary circumstances
13. Right to expect us to publish our service standards and report annually
14. Right to expect us to warn you about questionable tax schemes in a timely manner
15. Right to be represented by a person of your choice
16. Right to lodge a service complaint and request a formal review without fear of reprisal
The above rights may fall into two broad categories depending on whether the right is legislative or administrative in nature. Legislative rights are exercised through grievance redressal as provided in the Canadian Income Tax Act. Whereas administrative rights represent commitment of the CRA to its taxpayers. Its effectiveness is monitored through established systems like the CRA- Service Complaints process and Taxpayers' Ombudsman. However, it must be noted that the Rights Bill since not been legislated in itself and currently, has no force of law.
Also, unlike the Australian Taxpayer's charter, the Canadian Taxpayer Bill of Rights does not make the presumption of honesty as a fundamental right. Also, it must be noted that the rights contained within the Taxpayer Bill of Rights are not enshrined within the law and therefore they are not legally binding.
The Budget 2020 proposal of Taxpayer's charter and also enshrining it into the law is a welcome move. It is to be seen how robust and comprehensive the Charter, which is yet to be notified, will be. If adopted in spirit and coupled with an efficient grievance redressal system, the Taxpayer's charter may largely ensure that there are no violations of taxpayer's rights. If the charter is formulated as a framework which combats coercive authority, it can go long way in developing and instilling confidence in the tax system while also positively influencing Taxpayer behavior towards greater compliance. Also, there should be an efficient mechanism in place for compensating those taxpayers / citizens who suffer loss or damage as a result of inappropriate or wrongful tax officers' actions similar to UK taxpayer charter. Further, the Charter should clearly articulate the rights and obligations and strike the perfect balance between what is expected from the taxpayer and what the taxpayer is entitled to and can expect from the tax administration.