How govt can reduce cos’ compliance burden – Times of India

Tax policy and administration play a pivotal role in shaping the economic landscape of a country. For corporates around the world, the competitiveness of local laws and the associated compliance costs are crucial factors when deciding on investment destinations. These costs include the time and resources dedicated to adhering to tax laws, maintaining records, filing returns, and liaising with tax authorities.
It is incumbent upon govts to ensure that tax laws and compliances are fair, equitable, and streamlined, so that they do not hinder business operations. In India, the tax system has historically been complex, characterised by large number of indirect and direct taxes levied by various levels of govts. Recognising this, the Central Board of Direct Taxes (CBDT) and the Goods and Services Tax Network (GSTN) have been diligently working to enhance user experience and simplify the compliance process.
The introduction of the GST in 2017 marked a significant overhaul of the Indian tax compliance landscape, complemented by various digitisation efforts. Yet, the GST law requires monthly and annual returns, plus a yearly reconciliation statement for each state, leading to 14 returns per state each year. For entities operating across multiple states, compliance becomes a substantial investment of time and effort.

As a result of digitisation, the GST and income tax systems are also being linked and there is seamless flow of data among various departments of govt. However, the tax policy makers have regularly expanded the scope of tax deducted at source (TDS) and tax collection at source (TCS) provisions, over the past few years. This has increased the TDS compliance and reporting burden of corporate India. For example, recent years have seen the introduction of TDS on transactions such as purchase of goods, cash withdrawals from the bank, and benefits or perquisites provided in the course of business. TCS has also been applied to overseas remittances, tour package sales, and sale of goods. These provisions, with their different thresholds and rates, are challenging for corporates to comply with.
Add to these the growing disclosure requirements in corporate tax return forms and tax audit reports and one is looking at a heavy compliance burden.
As India continues to refine its tax infrastructure, it is essential to monitor global trends and adopt best practices. One such measure could be introducing thresholds for presumptive taxation to alleviate compliance costs. For example, the UAE exempts corporate tax on profits up to AED 375,000. It also offers “small business relief” for companies with revenues up to AED 30,000,000, exempting them from corporate tax and transfer pricing documentation requirements, thus reducing the compliance burden for small taxpayers.
Continued reforms and technological investments are crucial for further reducing the compliance burden. The multiple TDS/TCS provisions can be reduced as also the reporting requirements in corporate tax returns and tax audit reports. With seamless data exchange among govt departments, tax filings can also be streamlined by removing disclosures where the data can be obtained from other sources.
Further, a consultative approach involving stakeholders in the design and scrutiny of proposed measures can help reduce some of the pain. Proactive communication of the intent behind tax policy measures and issuing clear and fair guidance on new provisions will provide certainty to taxpayers and decrease disputes.
(The writer is tax director, EY India; Aviral Godha, senior tax professional with EY has also contributed to this article. Views expressed are personal)