Sobhan Kar, Delhi, 18th August 2022
Tax certainty in India and across the world has gained prominence in recent years. Taxpayers have always pleaded for it, as it enables them to focus on their businesses and other meaningful activities. It is a great relief that tax administrations and international bodies, like the Organisation of Economic Cooperation and Development (OECD) have realised the importance of tax certainty. Litigation and disputes only result in inefficiencies and wastage of time and resources.
A simple tax code and clear rules are a sine qua non for tax certainty. Complex laws and rules have been a constant bane. In the Indian context, there have been several attempts to simplify the direct tax laws and rules but nothing has been achieved so far. Between 1997 and 2019, atleast five Committees have given their reports and recommendations but successive Central Governments have shied away from implementing the suggestions. In fact, a Direct Tax Code Bill, 2010 was introduced in the Lok Sabha in August 2010 but it lapsed in 2014 when the tenure of the 15th Lok Sabha expired.
Transfer Pricing is a major area of disputes and litigation and multinational enterprises (MNEs) face huge challenges in different countries. In recent years, the G-20 and the OECD countries have tried to find various ways and means to put an end to transfer pricing disputes. Advance Pricing Agreements (APAs) are the best among a bouquet of options available to achieve certainty in the arena of transfer pricing. Most developed countries have an APA programme. India also has such a programme and it has done pretty well in its 10 year journey so far.
The Indian Government and tax administrations across the world had a tough time during the pandemic in collecting tax resources. So, there is an attempt now to maximise collections through new taxes and stricter implementation of existing laws. While this is understandable, it could lead to tax uncertainties due to increased level of disputes. Further, the geo-political crisis triggered by the Russia-Ukraine war is only adding to tax and economic uncertainties. A matured, balanced, and strategic approach by tax administrations is the need of the hour to provide tax certainty amidst such all round uncertainties.
