aptitude and reasoning

What is tax litigation and how are they impacting economy?

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.

On citizens:-

  • 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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Way forward:-

  • 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.

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