Budget 2017: Government arms tax officers with sweeping powers for searches and surveys

The government has armed tax officers with sweeping powers to conduct searches and surveys, a move that’s made industry jittery, saying it could lead to arbitrariness and harassment. Junior officers in the tax department can conduct an inquiry in a case where no proceeding is pending, without getting sanction from a higher authority. The proposal is meant to reduce the work load of the department. The Budget has also proposed that the income tax authority need not disclose the “reason to believe” to initiate a search to any person or any authority or the Appellate Tribunal. This change, meant to maintain the confidentiality and sensitivity of the search proceedings, will be retrospective from April 1, 1962.

The tax officer can also provisionally attach any property belonging to the assesse after getting approval from senior authorities. This is intended to protect the interest of revenue and safeguard recovery in search cases. These are fairly extensive powers and have the potential of being abused, said Shefali Goradia, a partner with BMR & Associates’ corporate tax practice.

Tax authorities have the power to survey and enter the premises of charitable organisations, a move that experts said is meant to tighten the noose on non-governmental organisations.

“The FM is right when he wants to expand the tax base, but it must be ensured that the tax administration is handling powers in a judicious way,” said Dinesh Kanabar, CEO of Dhruva Advisors. “Roving inquiry should be avoided and the power to attach assets should not be used to coerce people into making declarations.”

Raids are seen as blunt instruments of law enforcement. India has the software prowess and the need is to use big-data analytics to track evasion. The government has introduced General Anti Avoidance Rules to curb sharp tax practices. GAAR entails using discretion and needs safeguards to prevent its misuse. The Shome committee had underscored the need to train officers extensively to deal with advanced instruments of taxation such as GAAR.

Expanding scope of dividend tax to include trusts could potentially lead to double taxation, said Goradia of BMR.

Also, if any Indian company or a permanent establishment of a foreign company pays interest of more than Rs 1 crore to an associated enterprise outside India, the tax deduction will be allowed only to the extent of 30% of the gross profit of the Indian company. So, foreign companies will need to restructure their investments as they will be hit by the rule on “thin capitalisation,” said senior chartered accountant Dilip Lakhani.

However, the government wants to bring domestic I-T laws in sync with global rules to fight tax avoidance, widen the tax base and ensure that companies pay their due share of taxes in the markets where they make profits.