Will the expansion of proof of submission of returns requirement increase tax filing?

The inclusion of six more services is indeed a good initiative. The addition of six more services will definitely help to raise awareness among e-TIN holders to file their tax returns duly and regularly for the core need of continuing their activities and business. Indeed, for a long time, collection of e-TIN was mandatory, not filing of return. With the enactment of such an innovative provision through the Finance Act 2022, awareness about filing returns has increased amongst e-TIN holders. 

Many of us criticised the low tax GDP ratio but offered no real-time solution. Approximately 2.6 million assessees filed tax returns during the assessment year 2021-22. As of now, almost 3.2 million assessees filed tax returns representing a 23% increase in filing returns on a year-on-year basis as of now.

Many analysts report that there are at least 40 million people who should be under the tax net but as of now, e-TIN holders are approximately 9 million only. Hence, in my opinion, to improve the tax-to-GDP ratio, there is no better alternative to taking measures to increase the tax net. This initiative shall be appreciated as it will definitely contribute to improving the tax-to-GDP ratio gradually. 

What initiatives can increase more filers? 

We need to acknowledge the fact that we need more initiatives to make tax filing more convenient for e-TIN holders. Currently, although there is a platform for filing returns online, only 228,000 (approximately) filed returns online, the majority of which are zero tax return/payment filers. In 2019, India made a history of increasing the number of filers which was only achieved through a robust IT system. The current IT platform should be made more comprehensive and robust so that taxpayers can file returns with ease. An adequate budget should be allocated for (a) Hardware purchase, (b) Software (c) employment of IT specialists and their salary and allowance, and (d) maintenance expenses for a comprehensive IT system.

Enacting the best law in the world will not be enough for the implementation of the law unless the stakeholders are completely aware of the law. I was expecting the authorities to educate the ones responsible for collecting PSR, telecast the same in the electronic media, and publish news in the print media. The entities responsible for collecting PSR need to understand the documents which can be accepted as proof of submission of return so that access service/supplies/approval remains uninterrupted. Adequate budgetary allocation should be made in this regard.

Also, a number of challenges have still not been addressed. When you are receiving service or allowing approval, you can neither enlist nor approve until PSR has been provided by the vendor. But in the case of banks, if customers do not cooperate in providing PSR, banks cannot stop providing banking services. Now, if banks are found to fall behind in terms of compliance, they will be penalised and that is indeed unjustified. There are still ambiguities regarding whether secondary account holders will have to submit PSR for accessing services. It has been a year; the authority has not yet issued clarificatory directives. Hence, we expect the authority to address the challenges and ambiguities and provide fresh directives.

Being involved with the active chamber of commerce and association, many experts felt the necessity of an amnesty in our upcoming Finance Act 2023. A first-time filer might have accumulated assets that were not disclosed as they either did not have an e-TIN or did not file tax returns despite having an e-TIN in the past. So, all these accumulated assets remained unreported.

If one elects to file a tax return, they must disclose the assets in the tax return, which might be challenged by the assessing officer regarding the source of the income. Many assessing officers might not agree with the rationale of past savings when a source of this significant amount of assets is shown as past savings. The government may make a directive for not asking for sources up to Tk 40 lakh as past savings since there is a threshold for a one-page return and impose tax at 10% if past saving exceeds Tk 40 lakh. 

Personally, I don't like amnesty, but I am willing to listen to opposite views if it really helps to increase the tax net.      

Snehasish Barua is a partner of Snehasish Mahmud & Co, a firm that provides audit, tax, and consulting services.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.