OECD’s Relief Measures and the Indian Tax Regime

[Vishal Rajvansh is a 3rd year BA.LLB student at the National University of Study and Research in Law, Ranchi]

The effect of the fight against Covid-19 has compelled several countries to implement unprecedented measures, such as restrictions on the free movement of people and goods, shutting down large parts of the economy and isolating a significant proportion of the population. Notably, the world’s economic activity is currently undergoing an incessant financial drop leading to an assessment of the crisis on tax revenues by the policymakers. At this state of extreme distress, most countries are putting stimulus packages in place, including measures to support employment. Thus, it is imperative to note that apart from handing health emergencies, the instant economic priority for policymakers is to improve cash flow for businesses. The ambition is to ensure that households and businesses are able to keep their heads above water until the health crisis can be contained, so that the economy is prepared to deal with the aftermath of the current pandemic.

The Organisation for Economic Co-operation and Development (OECD) has recently issued a set of measures duly contemplated by tax administrations. These recommendations are intended to deal with the impact of the current pandemic under tax treaties due to travel restrictions and following potential tax exposures. These relief guidelines aim to assist tax administrations and businesses in affected countries in formulating their own possible measures. The notable OECD guidelines coupled with an insight of the measures taken by the Indian Government are discussed below.

Extension of timelines for filing of tax forms and making tax payment

Owing to the pernicious effect of the current pandemic, the filing of income tax returns and payments is still due in many countries. The OECD has made a suggestion to push these timelines by several weeks or months in order to offer individuals and businesses effected by current pandemic with additional time to file their tax returns and related forms, as well as to make tax payments. On the similar lines, the Indian Government has brought the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, intended to eradicate the problems being faced by taxpayers due to the Covid-19 pandemic and subsequently to reduce the cash flow burden. Notably, the Ordinance has extended the due dates for the payment of certain taxes to 30 June 2020. Time limits for completion of proceedings, passing orders, issuing notices, filing of appeals, responses or applications or furnishing documents and filing returns have also been extended to 30 June 2020.

Exemption of penalties and interest

The OECD further suggested considering deferral of penalties and interests, which have been imposed but are yet to be paid.  Understandably, the Indian Government has decided to apply a marginally reduced interest for late payments by way of the Ordinance if the taxes are paid before 30 June 2020. The OECD has also suggested that tax administrations cooperate with taxpayers by easing their cashflow burdens by deferring tax payments that are due, accepting tax payments in instalments or even suspending such payments. Similarly, through the Ordinance 2020, India has decided to offer some tax payment deferral, including on payment of advance tax, though the deferral is subject to interest at a reduced rate.

Suspension of debt recovery

The OECD has also suggested that tax administrations suspend debt recovery. Yet, in India the Central Board of Direct Taxes (CBDT) has not declared suspension of recovery proceedings. Further, the OECD has also recommended carving out a mechanism to ensure quick refunds to taxpayers. With the intention to ease the cash flow burden of small businesses, the Indian Government announced issuance of all pending income tax refunds of up to INR 500000. At this juncture, when most businesses are at a financial peril due to the current pandemic, debt recovery can strike a disconcerting imbalance in the stability of the businesses.

Alteration in audit policy

According to OECD, tax audits have the potential to be a highly resource intensive process for taxpayers as well as tax administrations. The OECD has, therefore, rightly suggested a temporary change in auditing policy, especially for large taxpayers requiring larger resources and time. Although the change will not be eternal in nature, yet it will bring paramount relief which is essentially required at the time of such distress. The Indian Government has not notified any similar measures. However, it should follow the recommendations put forth by the OECD to complete assessment proceedings and administrative functions, such as carrying out scrutiny assessment deadlines.

Enhanced taxpayer services and communication initiatives

After much contemplation, the OECD has recommended that tax authorities of different nations apply measures to reduce physical contact and enhance digital communication. Some of the suggested measures include putting in place dedicated web pages, hotlines, mobile applications, telephone, fax, etc. These measures can be useful to communicate with both digitally active and challenged taxpayers. Fortunately, the Indian Government has already been working to develop digital platforms. Although a need for additional efforts might arise to ensure easy access to digitally impaired or less acquainted taxpayers and are not in a position to avail tax services from others as well.

Analysis

While it is commendable that the emphasis of these tax measures is to improve the cash-flow for businesses and offer income support to households, the Government needs to examine measures such as long term fiscal strategies in order to achieve a balance between fiscal stimulus and fiscal consolidation. Evidently, the pandemic outbreak is likely to prolong, leading to economic shutdown leaving deep economic impacts. Thus, although the policymakers have already begun serious contemplation on rebuilding confidence and stimulating economic activity, yet there exist numerous recommendations released by the OECD that possess the potential to strengthen the spine of economy. It is pertinent for the Government to implement these relief measures by preparing suitable mechanisms in order to prevent a possible economic chaos.

Vishal Rajvansh

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