According to the economic survey 2017 – 2018, the income tax department is the biggest litigant but losses 85% of cases. Moreover, claims of work 4.7% of DGP are stuck in tax litigation, impacting the investment private as well as the public.
Reasons for high tax litigations:-
- Complex tax laws – make it ambiguous to understand the provisions of exemptions etc.
- Arbitrariness in actions of tax officials.
- Practices of Base Erosion and Profit shifting tax evasion etc, because of high taxation rates.
Impacts of high tax limigations:-
On Businesses –
- Their investments get struck resulting in the rise in project costs.
- Legal costs are very high.
- Tax expenditure increases.
On government ad judiciary:-
- High pendency of cases in judiciary.
- Economic growth suffers.
- Lack of job created.
- Inflation due to shortage of production.
- They suffer because of storage of funds available with the government to spend.
How tax litigation can be reduced:-
- Dedicated subject matter courts can have benefits.
- Easing tax compliance by eliminating ambiguity in-laws.
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- Commercial Division Benches in high courts should be established as per the act.
- Direct tax code should be formulated at the earliest.
- Mutual assistance treaties with other countries can help.
High tax litigation is a drag on economies case of doing business ranking. Resolving these cases soon and preventing further litigation can make us realize the NITI Aayogs target of a $4 trillion economy.