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First Report of Tax Administration Reform Commission (TARC)
Jun 20, 2014

Tax Administration Reform Commission (TARC) submitted its First report to the Finance Minister recently. Recommending far-reaching reforms in tax administration, a government committee has suggested abolition of the post of Revenue Secretary, merger of CBDT and CBEC and broaden the use of Permanent Account Number (PAN).

The Tax Administration Reform Commission (TARC), headed by Parthasarathi Shome, also said the retrospective amendments to tax laws should be avoided as a principle and Income Tax Return should also include wealth tax details.

Highlights of the Report

  • Separate budget allocation to ensure time bound tax refund and a passbook scheme for TDS (Tax Deduction at Source).

  • The post of revenue secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards (CBDT and CBEC). This would empower the tax departments to carry out their assigned responsibilities efficiently. 

  • The tax administration needs to have greater functional and financial autonomy and independence from governmental structures, given their special needs.

  • The revenue secretary, an IAS, is "likely to have little experience or background in tax administration at the national level and little familiarity with tax."

  • The two Boards must embark on selective convergences immediately to achieve better tax governance, and, in next five years, move towards a unified management structure with a common Board for both direct and indirect taxes, called the Central Board of Direct and Indirect Taxes.

  • The PAN should be developed as a Common Business Identification Number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO.

  • Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted between central excise and service tax under the CENVAT credit rules.

  • It is also necessary to provide for de-registration, cancellation or surrender of registration numbers and PAN.

  • The approach to retrospective amendments has resulted in protracted disputes, apart from having deeply harmful effects on investment sentiment and the macro economy and recommended retrospective amendment should be avoided as a principle.

  • I-T returns should also include wealth tax return so that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru.

  • A dedicated organisation for delivery of taxpayer services with customer focus and made a strong case for ‘pre-filled tax returns’.

The TARC lists its main recommendations in the full belief that they can be instituted if the willpower exists at the top policy level. Such changes have occurred in other countries including the one that bequeathed India her prevailing bureaucratic structure that has seen its best days and has outlived itself. It is now time to confront what is bad and change it for the better to reflect the expectations of India’s new and future generations that have the desire to work and be productive rather than facing and combating high costs of compliance. Only recommendations that are desirable and doable along these lines are listed below. Also, the recommendations should be considered as a package and not on a pick-and-choose mode.

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