Taxation is a fascinating branch of law, though highly complex and complicated to comprehend. lts practice demands an adequate knowledge of accountancy and economics besides a fair knowledge of various commercial laws, personal laws, laws relating to property as also civil criminal laws.
The system of taxation has been in existence since time immemorial when people started to organise themselves into societies and with the establishment of some form of governing bodies. The legitimacy of the collection of tax by the governing body for the welfare of its subjects has been accepted from a long time. But from the ancient time to the modern age, the concept has witnessed a multi-pronged transformation. Justice Oliver Wendell Homes once said “taxation is the price we pay for civilisation”.
In India, financial liberalisation was the centrepiece of the larger programme of “economic reform”. Much of the prescriptions of the western world found their echo in the post-1991 economic reform programme in India. It began with a radical programme of stabilisation and structural adjustment, assisted by the World Bank and the IMF. Immediate measures of macro-economic stabilisation, fiscal correction, exchange rate adjustment, monetary targets and inflation controls were announced. These stabilisation measures were to be supplemented by structural reform measures, which included industrial deregulation, liberalisation of foreign direct investment, trade liberalisation, overhauling of public enterprises and financial sector reforms.
Taxation, which was originally a means to sustain the survival of the State, over the years underwent substantial changes and now, as we stand in the 21st century, is perceived as one of the major means to vitalise economic development. And thus, it could be concluded that taxation carries forward the important task of economic vitalisation, income redistribution, and socio economic cohesion.
The fundamentals of our economy must be very strong but the economy of our country depends upon augmentation of the resources for which taxation is absolutely essential. The people of the country pay taxes and the lawyers encourage them to pay the legitimate taxes to the State. But we expect that the taxes should be properly utilised.
The tax profession is a solemn and serious occupation. It is a noble calling and all those who belong to it are its honourable members. Although the entry to the profession can be made merely by acquiring the qualification of tax competence, the honour as a professional has to be maintained by its members by their exemplary conduct both in and outside the Court.
The role of tax professionals in the current global economic scenario is extremely important. They have started to play a crucial role in ensuring the sound functioning of domestic tax systems. Hence, the well-functioning of a tax system depends to a large extent on the efficacy of the tax advisors. However, there exists some real and potential conflict between the duty to provide zealous representation of clients and a more abstract responsibility towards “the system”.
The taxpayers, in order to pay less tax, often try to exploit the inconsistencies and ambiguities in the tax legislation. Where different tax consequences follow two different forms of a transaction, the taxpayer will, if properly advised, often adopt the form that incurs the lowest tax burden. And, where there is some ambiguity in the application of the statute, the taxpayer will seek to interpret the ambiguous wording in the most advantageous way possible.
Thus, any law aimed at regulating the tax advisors must take into consideration the state’s interest in raising revenue and the client’s interest in minimising tax. It is also necessary to put in place proper regulations to protect the clients from unscrupulous or incompetent tax advisors.
In the era of globalisation and e-technology the entire world has become a global village and we have to get ourselves fully equipped with the latest developments in each field of taxation.
Tax evasion as a matter of major concern
The state’s financial experts as well as the economists and social scientists feel that the growing tax evasion is mainly due to our defective, irrational and anti-conditioned taxation policy. The variety of tax preferences that are extended to the subjects have not only distorted the after-tax rates of return on various types of investments in unintended ways, but also have significantly eroded the tax base. The wide ranging tax preferences have led to large scale avoidance of the tax by companies resulting in several “zero tax” companies. In order to correct this, Minimum Alternate Tax (MAT) was imposed since 1997-98.
In India there has been insufficient manpower for tackling evasion. While complete elimination of evasion may well be an uphill task, it is quite possible to subject returns to better check. Taxpayer education and use of media is another area through which better compliance is possible.
Also, we cannot be unmindful of the fast-paced changes taking place in the taxation regime in the country, and even internationally. In our own country, in the next few years, the Income-tax Act of 1961 is likely to be replaced by the Direct Tax Code. The Central Excise, Service Tax and Value Added Tax regimes are proposed to be subsumed under the Goods and Services Tax. Perhaps, a beginning has already been made with the new Companies Act, 2013. A lot of systems would be interlinked through the use of information technology. There would be a paradigm shift in our taxation system on all fronts. Not only the content of the law shall stand changed, but also the manner in which we approach taxation itself will undergo a complete transformation.
For any professional, be that a Chartered Accountant, Advocate, Tax Practitioner or Engineer, Doctor or Architect, the integrity and honesty is the supreme which makes the man straightforward and sincere to his profession.
For achieving success, one has to be quite objective as well as fair and impartial to his colleagues, subordinates and to the work itself.
When it comes to a professional, not only entire stake but some time the life of a person is put in the hands of the professional. Hence, the professional’s competence is supreme which can be achieved by having the complete knowledge and information about the subject and the laws with which we are dealing.
The statutory bodies of advocates and chartered accountants or the Bar Council of India, State Bar Councils and the Institute of Chartered Accountants of India have the duty to control the working of the professionals.
However, in today’s world, tax professionals must be concerned also with risk management, tax contingencies, disclosure requirements and reputational risk. In order to keep the professional reputation always high, it is absolutely essential that we must be very careful and we should not make a part of our professional family such persons, individuals or the professional firms who have indulged in various unscrupulous work.
Moreover, with the convergence of International Financial Reporting Standards (IFRS) and lndian Accounting Standards, and the convergence of accounting treatment under the Companies Act and the Income-tax Act, it will not be long before these systems are inter-linked and the tax authorities can, at the click of the button, verify the actual accounts of an assessee. At a more mundane level, with the introduction of information technology, it is far easier to ascertain the authenticity of transactions for claiming deductions or tax credits. Taxpayers profiling, which provides the tax authorities with a rich source of information, is common now, at least on the Income-tax side, and is made easier with the e-filing initiatives.
Every year, Economic Co-operation and Development, or OECD deeply examines and brings out a report on a particular aspect of taxation, such as Voluntary Disclosures, Tax Avoidance Processes, Role of Technology in Taxation etc. ln a globalised world, where we are slowly inching towards adopting the same processes and frameworks as are prevalent in the Western world, we have much to learn from these studies and reports.
Make in India Campaign
Indian markets have significant potential and offer prospects of high profitability and a favourable regulatory regime to entice investors. With the new ‘Make in India’ campaign the Government further intents to attract the Non Resident Indians to make financial investment in India. The ambitious ‘Make in India’ campaign launched on September 25 aims at turning the country into a global manufacturing hub. Government’s initiative to create ‘Make in India’ a global phenomenon will bolster and help increase per capita income and will create jobs for over 10 million people.
The tax professionals are advisors and not Senior Executive Officers of the corporate world. We must act independently according to our knowledge and wisdom and not according to the desire or dictate of any assessee or client, howsoever big it may be.
The nature of business is also undergoing a change. Globalisation is slowly leading to a situation where size of business is becoming all important – not just for expansion, but even for survival. Global competition is leading to the obliteration of any business which does not have the capacity to cope with the challenges, and increasingly, with size or scale of the business, the capacity to survive is increasing, while smaller businesses are being wiped out. Take any sector of the economy, be it finance, construction, real estate or retail, the big have to get bigger and smaller are on the risk of being wound-up.
Taxation is a sharp-edged weapon of fiscal management. The developing countries face the problem of financial inadequacy mainly due to the limited avenues for its generation. Taxation remains the lone source in the hands of the Government either for augmenting the State revenues or for carrying forward the task of economic development.
India today remains as an unbeatable combination of an ancient civilisation embracing economic globalisation in a context that is open and democratic, and that is what really makes India the emerging giant that it has become.
In the changing times present tax professionals are facing new challenges. But fortunately, the tax professionals as a group are not hesitant to embrace change, and embrace it successfully. Even though, there may be initial hiccups, but I am sure that the tax professionals will master their new role.
[Source: Inaugural Speech delivered at National Tax Conference held on 20th December, 2015 at Jaipur]
Hon’ble Mr. Justice R. K. AgrawalJudge, Supreme Court