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Tax terrorism is the fear and perception of tax authorities resorting to aggressive practices to achieve revenue collection targets. The key features of tax terrorism include retrospective taxation, high taxation, aggressive tax collection targets, excessive notices and summons, prosecution for minor infractions, and use of enforcement agencies. The term gained prominence in 2014 when India’s Finance Minister referred to retrospective tax amendments.
Introduction
- Causes of Tax Terrorism
- Legislative Practices:
- Frequent amendment to tax laws and high tax rates.
- Administrative Actions:
- Stringent revenue collection targets for tax officials.
- Impact on Taxpayers:
- Mass issuance of notices without proper investigation.
- Legislative Practices:
- Impact of Tax Terrorism
- It creates a hostile environment, discourages investments, and legal uncertainties.
- It scares taxpayers, thereby losing confidence in the tax system.
- It also causes stagnation of business growth as there is fear of hassle of compliance and potential migration of capital and talent to more tax-friendly jurisdictions.
Challenges in Indian Tax System
- Social Perception about Taxes:
- Tax evasion is considered to be a normal practice, resulting in non-payment of taxes.
- India has a high rate of taxes as far as a developing country is concerned.
- Aggressive Enforcement Practices
- Scrutiny assessments and surveys are criticized for being too intrusive.
- Public responses to tax actions tend to characterize assessments as unfair.
- Remedial Measures
- Aggressiveness in prosecuting admitted tax evasion cases
- The law to become less technical for taxpayers.
- Utilize technology to increase faceless assessments.
- Reward compliance through incentives for continuous compliance.
