In order to bridge the fiscal deficit gap and recover a part of the money stuck in tax litigations, the government is planning to introduce a litigation settlement scheme in the Budget 2020-21. The scheme will allow companies to put an end to legacy tax disputes by paying a portion of the money demanded by the revenue department, the Economic Times reported citing four people with knowledge of the matter.
According to the business daily around 500,000 cases have been pending in the courts and quasi-judicial forums for years and it could take a long before the tax department sees any of the money, assuming it eventually wins. The total value of these disputes is pegged at Rs 7-8 lakh crore.
Although details of the proposed scheme are not available, it could be along the lines of the Sabka Vishwas–Legacy Dispute Resolution Scheme, which is aimed at reducing old service tax and central excise cases, the persons cited above told the publication.
“There are over Rs 8 lakh crore stuck in direct tax litigation and a resolution scheme could be a good way to unlock value for the government,” the ET report quoted Girish Vanvari, founder of tax advisory Transaction Square as saying. “The government should come out with this scheme where companies could settle the disputes by paying, say 10-20% of the tax demand. There are several companies that would like to avail this scheme.”
As per the report, the government could ask companies to pay part of the disputed amount along with interest and penalties levied on that. Or it could ask them to pay 40-50% of the tax demanded. The tax rate may not be the same for every company — it could depend on the litigation amount and even the details of the case.
“A litigation settlement scheme in direct tax is one of the ways the government can aim to bridge a part of the fiscal deficit gap,” said Gautam Mehra, partner and leader, tax and regulatory, PwC India, told the business daily. “While the increase in the threshold limits for higher litigation has reduced the number of cases under litigation, given the large stakes involved, it yet could have a potential of netting in good revenues for the government, while at the same time reducing the cost and effort involved in litigation at both ends.”