THE GIST of Editorial for UPSC Exams : 18 April 2020 (Use tax salve to lessen COVID-19 pain (Indian Express))

Use tax salve to lessen COVID-19 pain (Indian Express)

Mains Paper 3:Economy 
Prelims level:Vivad se Vishwas Scheme
Mains level: Impact of cash-flow and liquidity problems for taxpayers in an economy 

Context:

• The government has announced several measures to provide relief to taxpayers and alleviate cash-flow problems faced by them as a result of the disruptions caused by COVID-19. 
• Highlights about the ordinance: 
• An ordinance promulgated on March 31, has extended time limits specified in the law for various compliances, for making payments under the ‘Vivad se Vishwas Scheme, 2020’ and making tax-saving investments, etc, falling within the period March 20 to June 29 to June 30. 
• Reduced rates of interest have been provided in respect of tax payments falling due between March 20 and June 30, if the payments are made by June 30. 
• Separately, a special dispensation for expedited issue of certificates for lower or nil deduction of tax at source has been introduced. 

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Impact of extending the lockdown period: 

• However, with the period of lockdown now having been extended to May 3, the cash-flow and liquidity problems for taxpayers are bound to increase.
• The Central Board of Direct Taxes (CBDT) would do well to examine the need for additional measures. 
• Drawing upon the compilation of country responses to COVID-19 published recently by the OECD—Forum on Tax Administration as well as requests being voiced by different stakeholders, the following further steps could be considered.

Deferral of tax payments:

• The reduction in interest rates on deferred tax payments brought in through the ordinance may not provide adequate relief to a large number of taxpayers who are facing, or will be facing, acute cash flow problems due to the lockdown. 
• Several countries have allowed taxpayers who can demonstrate cash flow problems due to COVID-19 to seek deferment of advance income taxes payable by them for periods up to a year and, in some cases, without payment of any interest.
• CBDT could consider authorising Commissioners of Income Tax to grant further reduction or even complete waiver of interest chargeable for delays in payments of,
• (i) advance tax due on June 15 and September 15, and 
• (ii) self-assessment tax in respect of income of FY20, and due to be deposited by September 30.

Suspension of tax-debt recovery measures:

• No relaxation has been specified by the ordinance in respect of payment of outstanding tax demands by taxpayers. 
• Several countries around the world have applied a pause on coercive or active enforcement measures for collection of tax. 

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Faster refunds:

• Government has already directed immediate issue of all pending tax refunds of amounts up to Rs 5 lakh. 
• The primary and urgent requirement at present is to provide direly needed cash flow and liquidity to small and medium businesses, and to individuals and senior citizens who are dependent on fixed income sources such as interest and rent. 
• It is also to be noted that these pending refunds represent the taxpayers’ own money paid in the form of excess taxes. CBDT should, therefore, consider substantially enhancing the monetary limit of Rs 5 lakh for expedited processing of refunds in all cases.

Tax residence:

• Apprehensions have been expressed by tax professionals that there could be several cases where individuals or managers and employees of non-resident enterprises are stranded, or otherwise find it safer to stay on in India, and the extended periods of stay may give rise to issues of tax residence or of place of effective management.
• Impacting the taxability in India of the income of such persons or of the enterprises they work for.
• However, these considerations are essentially based on tax treaties:
• In order to provide tax certainty even under the domestic law, CBDT may consider issuing a circular to assure taxpayers that, 
• (i) the place of effective management of a foreign company shall not be taken to be in India merely because certain persons responsible for taking key management and commercial decisions are stranded and unable to leave India for any period of time owing to the impact of COVID-19; and 
• (ii) any period of time reckoned for the purpose of deciding whether a non-resident individual (including a non-resident Indian) has acquired the status of a resident, or resident, but-not-ordinarily-resident in India, shall not include the period for which the taxpayer establishes that he was forced to remain in India due to COVID-19 considerations.

Conclusion: 

• The above measures can be carried out through administrative instructions and circulars issued by the CBDT and do not need any amendments to the Income-Tax Act.

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Prelims Questions:

Q.1)With reference to the SIDBI Assistance to Facilitate Emergency response against Corona virus (SAFE PLUS), consider the following statements:
1. It was launched to provide financial assistance to MSMEs engaged in manufacturing of hand sanitizers, masks, gloves, head gear, bodysuits, shoe-covers, ventilators and goggles used in dealing with COVID-19.
2. Small Industries Development Bank of India (SIDBI) set up in 1990 under an Act of Indian Parliament, acts as the Principal Financial Institution for Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector. 

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer...............

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Mains Questions:
Q.1)With the lockdown extended, the cash-flow and liquidity problems for taxpayers will increase. In this context what CBDT would do well to examine the need for additional measures. Comment.