Indian taxpayers as well as the global investors consider this as high risk. Business plans, profit estimation, cash flows etc. go haywire when the unexpected tax demand is raised on the tax payers particularly when the law is amended with retrospective effect.  Along with the tax liability there is additional liability for mandatory interest for non-payment of advance tax or delayed payment of tax for the relevant year.

The Finance Bill, 2008 presented before the parliament has the distinction of introducing many direct tax proposals to be effective from earlier dates.  The reason given for these retrospective amendments is that they are proposed to clarify the legislative intent.  Now, it is a moot question that how the taxpayer will be able to ascertain the legislative intent behind insertion or modification of any provisions in the statute. 

Once the judiciary including apex court interprets the law after analysing the statute, one wonders whether it is ethical and equitable for the Government to amend the law retrospectively under the guise of legislative intent. 

The trend of retrospective changes in the law destroys the trust between the Government and the taxpayer.  If the Government genuinely wishes to develop atmosphere of mutual trust with the tax payers it must refrain from bringing retrospective changes in law for small revenue gain. No regulation can be truly effective unless it is accompanied by ethical approach.  

Any inequitable action of the Government that shakes taxpayers’ confidence will not help the nation in the long run.   When a taxpayer who succeeds in the apex court after a long drawn legal battle is compelled to pay tax on account of retrospective change in the law, he considers it to be mockery of justice and equity. The Government, after losing the tax matter in the Court should not become a winner by changing the rules of the game through retrospective amendment.  At least the retrospective changes should spare those who have succeeded at the appeal stage.

One does not question the power of the legislature to make retrospective amendment, but one believes such power should be used sparingly and that too only for extra-ordinary matters. It should not be used merely to get overrule every single judicial development that causes discomfort to the administration.

That apart, the taxpayer is burdened with the levy of mandatory interest under sections 234A and 234B on additional tax liability due to retrospective change in the law without any justification. Such an interest burden is unjust. There should be in-built provision in the law for not charging interest in case of increase in tax liability due to retrospective amendments to the law.

Accountability, a virtue for a good administration and good governance is yet to be brought on the statute.  Accountability as applicable to the taxpayer should equally be made applicable to the tax collector.  Accountability, if introduced will certainly infuse confidence amongst the taxpayers.  Today, the taxpayer is liable for penal consequences for any default committed by him. Similarly, tax administration should also be made responsible for any lapse on its part. 

Instead of bringing much awaited accountability in the administration, the Finance Bill, 2008 seeks to provide that a notice issued by an income tax authority will be presumed to have been served in a proper manner and in time, if the assessee co-operates or appears in the assessment proceeding. 

Such co-operation will validate the assessing officer’s lapse in serving a valid notice.  The irony of this proposal is that the assessee who co-operates in the assessment proceeding in spite of improper service of notice is penalised for his cooperation.  Such procedural changes in the law to cover up the lapses of the tax officials have demoralising effect on the tax payers. 

At the end, any taxpayer prefers to have reasonable estimate of its tax consequence.  He should be in a position to manage tax risk without having any unexpected and unreasonable impact on liquidity, profitability, cost structure and future investment plans.   Unexpected tax burden due to retrospective amendments shakes the confidence of the taxpayers.

Various retrospective amendments including proposal to modify the penalty provisions are proposed in the Finance Bill, 2008.  The Society has made representation to the Finance Minister on such issues. It is hoped that the Society’s representation to the Hon’ble Finance Minister would be considered in right earnest and the tax proposals will be modified before they are enacted into law.