Effect of Vivad se vishwas scheme and its implementation in India

Introduction

The Vivad se Vishwas Scheme (No Dispute but Only Trust Scheme) is a recent initiative by the Indian government aimed at reducing tax litigations. Similar schemes, such as the Sabka Vishwas Scheme (Everyone’s Trust), have been implemented in the past. The primary objective of the Vivad se Vishwas Scheme is to provide taxpayers with an opportunity to avoid prolonged tax litigation, especially when the disputed tax amount is lesser than the penalties and interests involved.

Objectives of the Scheme

The Vivad se Vishwas Scheme aims to address several key issues:

Reducing Tax Litigation

The scheme is designed to reduce the burden of pending tax disputes on the judiciary and promote ease of doing business. By offering a streamlined process for resolving these disputes, the scheme seeks to alleviate the backlog of cases in the judicial system.

Generating Revenues

By encouraging taxpayers to settle their disputes, the government aims to unlock revenues that are currently tied up in litigation. This can provide a much-needed boost to government finances.

Waiver from Payment of Interest and Penalty

Taxpayers opting for settlement under the scheme are offered waivers from payment of interest and penalties on the disputed tax amount, provided they comply with the conditions and timelines specified under the scheme.

Promoting Trust and Compliance

The scheme seeks to build trust between taxpayers and tax authorities by offering a simplified and expedited resolution process. This can encourage voluntary disclosure of tax liabilities and improve overall compliance.

Boosting Investor Confidence

Timely and efficient resolution of tax disputes can enhance investor confidence by providing certainty and clarity on tax liabilities, thereby fostering a conducive business environment.

Tax as a Source of Revenue

The concept of taxation serves three primary purposes:

Revenue Generation: For the government to fund its operations and public services.
Economic and Social Standards: To achieve certain economic and social goals.
Deterrence of Illegal Consumption: To discourage the consumption of goods and services deemed harmful by the state.

In India, direct taxes account for approximately 52.4% of government revenue. This revenue is crucial for the government to fulfill its role as a welfare state.

Effect of Pending Litigation on Revenue

As per the Ministry of Finance's Annual Report for 2017-18 and the Economic Survey of India, as of March 2017, there were 1,37,000 direct tax cases pending in Indian courts, amounting to a total disputed tax of ?4.96 lakh crores. These pending cases represent significant revenue that could be utilized by the government.

Legislative Debates and Issues Raised

While the government has highlighted the benefits of the scheme in terms of reducing tax pendency and easing the burden on stakeholders, the opposition has raised two major objections:

Imposition of Hindi Language: The concern that the scheme imposes the Hindi language on non-Hindi speaking populations.
Equal Treatment of Honest and Dishonest Taxpayers: The argument that the scheme does not differentiate between honest taxpayers and those who have evaded taxes, potentially undermining the commitment of honest taxpayers.

Direct Tax Vivad se Vishwas Act, 2020

The Direct Tax Vivad se Vishwas Act, 2020, provides a legal framework for the resolution of direct tax disputes. Key features include:

Declaration and Settlement: Taxpayers can file a declaration with the designated authority to resolve disputes and pay the disputed tax amount within a specified timeframe.
Waiver of Interest and Penalty: The Act offers waivers on interest, penalty, and prosecution proceedings, provided the taxpayer meets the conditions outlined.
Confidentiality and Finality: Declarations are confidential, and settlements are final, preventing further appeals or reviews.

The Act aims to promote compliance, enhance revenue collection, and reduce the litigation burden on taxpayers and the tax administration.

Assessment of the Scheme

The initial implementation of the Vivad se Vishwas Scheme has seen significant participation, with the government recovering ?72,480 crores in disputed taxes from 45,855 declarations. However, the scheme has not yet achieved its target of resolving around 4.83 lakh direct tax cases. The performance of assessing officers is now linked to their execution of the scheme, ensuring accountability.

There are concerns about the long-term effectiveness of the scheme. India's complex tax regime and history of poor compliance may present challenges. Additionally, there is a risk that the scheme could inadvertently encourage tax evasion by allowing taxpayers to delay their obligations until they are caught in disputes.

Conclusions

The Vivad se Vishwas Scheme is a significant step towards addressing the growing challenge of tax-related disputes in India. It aims to reduce litigation, enhance revenue collection, and foster a more business-friendly environment. However, there are concerns about its potential to incentivize tax evasion and the need for more incentives for regular taxpayers.

The government should focus on simplifying tax laws and enforcing them effectively to prevent tax evasion. By rewarding compliant taxpayers and ensuring strict enforcement, the government can create a fairer and more transparent tax system, ultimately benefiting both taxpayers and government revenue collection efforts.

References

[Deloitte](https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/thoughtpapers/in-tax-vivad-se-vishwas-bill-2020-noexp.pdf)
Business Standard
India Budget
EY

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Article Compiled by:-

Jamil Riyaz

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.