Government To Implement Tax Reform Committee's Recommendations for Fiscal Transparency and VAT System Overhaul

Today's budget announcement highlighted the implementation of recommendations from the Tax Reform Committee. Now, the government's approach to spending will include considering the revenue it could have collected if certain tax exemptions weren't granted.

In practical terms, when the government enters into new agreements for development assistance, it won't just waive taxes outright. Instead, it might offer tax refunds or credits through a return or exit mechanism.

Another significant change involves the Value Added Tax (VAT) system. Going forward, businesses will be required to issue electronic invoices for all their sales. Additionally, businesses engaging in transactions exceeding Rs 25 crore annually will face heightened scrutiny, with the government monitoring them closely to ensure smooth operations.

To encourage consumers to participate in the billing system, issues encountered in refunding 10% of the Value Added Tax (VAT) paid via digital transactions will be resolved, and this initiative will be effectively implemented starting this Shrawan.

All government agencies will be required to obtain a Permanent Account Number (PAN) and provide details of advance tax deductions electronically. In coordination with local levels, an integrated system for taxpayer registration and tax information collection will be developed to facilitate information sharing.

The number of Internal Revenue Offices and Taxpayer Service Offices will be expanded and upgraded according to the number of taxpayers and the nature of their transactions. Additionally, organizational reforms will be implemented in customs administration, including restructuring customs clearance offices to enhance post-clearance audits.

An automated system will be expanded and implemented to link financial statements submitted to banks and financial institutions with the details provided in the tax information system. A new system will be developed that allows taxpayers to obtain a tax clearance certificate with a QR code, provided they have submitted the required information and have no outstanding tax liabilities.

Legal provisions will be introduced to ensure that business transactions are paid electronically or via QR code directly into business accounts. To prevent and reduce tax evasion practices such as base erosion, profit shifting, and income fragmentation, transfer pricing guidelines will be formulated.

E-assessment and faceless audits will be implemented to make tax audits and investigations more transparent, efficient, and modern. Additionally, an intelligence unit will be established within the revenue administration to develop a system for the acquisition, classification, integration, and analysis of information.