Simplify tax than going for litigation: Premji

Wipro Chairman Azim Premji on Tuesday said that the government should lower tax rates, rather than run behind litigation.

Delivering the key note at the at the 158th Income Tax Day Celebrations organised by the Income Tax Department Karnataka & Goa, Premji said that if the tax structure is simplified, more honest people would come forward to pay tax.

“Tax collection is best achieved by voluntary compliance. One of the prime drivers for voluntary compliance would be lower tax rates. Lower the rate, lower is the incentive to evade taxes, as the cost of evasion would not be commensurate with the cost of compliance,” he said.

Premji pointed out that the importance of enforcement measures in a democratic setup should not be undermined. “Compliance through enforcement measures often yield only moderate results,” he said.

Premji lauded recent government initiatives like reducing corporate tax rates for small and medium enterprises, and rationalisation of the slab rate for individuals among other things.

Premji pointed out that tax education is also need of the hour in the country as it will further enhance the tax net and collection. "We should also enhance the tax education so that compliance will improve marginally. Tax collection will be best achieved by voluntary compliance,"he said.

As per the recent Economic Survey, total pendency of tax cases in direct and indirect taxes is worth about Rs 7.6 lakh crore, which is close to 5% of GDP. " The economic survey points out very succinctly that the success rate of appeals filed by Department at higher appellate forums is less than 30%. It is a pointer that there must be a serious qualification process for issues litigated at higher levels," he said.

Premji said recent action of the CBDT in enhancing the thresholds for filing appeals is another step in the right direction. "I am informed that this step alone would bring down the number of cases by 40%, with revenue implications of just Rs 4,800 crore," he said.

While these measures are well thought of to lessen the burden of pendency of cases, he pointed out that the root cause must be traced to the process of demand creation itself. "Our assessing officers certainly do not lack in skill or competence. Possibly, the responsibility of revenue collection should be separated from the responsibility of making sustainable tax assessments," he said.

Wipro Chairman also said there is high reliance on tax in the country and tax payers play imp role on nation building.

"In the Union Government’s Budget, tax revenue constitutes about 80% - 82% of its total receipts. Government’s spend on social sector, infrastructure and defence is met almost entirely out of tax collections. Given such high reliance on tax, it is only natural that taxpayers play a very important role in nation building,"he said.

Unlike a donation or philanthropy, which are voluntary acts of altruism, Premji said tax by its very nature is an expropriation under the authority of law.

"This may to lead to some resistance in some quarters. Resistance often arises because of perceived lack of clarity or transparency, and accountability in public spending. Transparency and accountability would enhance public’s awareness of their role in national building and would eventually help in increasing the tax base.

He lauded the government of India for its late enhanced focus on widening the tax base. "Tax to GDP ratio in India is about 16%, including State taxes, whereas in many developed countries it is around 35% to 40%," he said.

Premji said it is imperative that India’s tax-GDP ratio also climbs substantially, so that our public social investments can rise to the levels that are required. "This includes public investment in education, health, social security, and amelioration of the problems of the most needy,"he said.

Commenting on the tech adoption in tax collection, he said it is a welcome move in the country and a key role in significantly increasing the ease of voluntary compliance. "I am very happy to note that the technology adoption in Income tax department has been one of the fastest and efficient in the country," Premji said.

Technology has effectively cut down on face time with officers for routine and mundane activities.

"Today, the front end of the compliance process is fully automated. I am sure the back-end processes will also be automated with same pace and efficiency. Leveraging on technology, there is also a good prospect of using GST data to validate the income tax returns," he said.