Set up Ombudsmen for taxpayers' plaints: Survey

The Economic Survey 2020-21 has suggested setting up of an independent tax ombudsman to ensure enforcement of tax payers rights. In India, tax ombudsman existed for both direct and indirect taxes earlier but were abolished in February 2019 as they were seen to be ineffective. Their decisions were only advisory in nature which is why they were abolished in 2019.

However, global experience suggests an ombudsman system is necessary for ensuring protection of taxpayer’s rights, says the survey.

According to the survey, a possible reason for abolishing the ombudsman institutions in India may have been inadequate independence from the tax department.

This is what the Economic Survey had to say:

There is a need to reinvigorate the systems of grievance redressal in India, and incorporate a more holistic view of enhancing customer experience and protecting taxpayer rights. In such a case to avoid the conflict of interest, ensure fair dealings and consequently build the trust between taxpayers and the concerned tax authority, it is imperative that the redressal organisation has adequate teeth and is independent of the tax department. Such an institution would thereby make the ‘Honoring the Honest’ platform more successful by ensuring accountability and trust in the tax administration system.

Global experience with tax ombudsman

The global experience suggests that countries with an independent tax Ombudsman have performed better on the tax administration front through better trust between taxpayers and tax authorities, and have exhibited a higher average Tax to GDP ratio and lower time taken to file taxes (OECD 2017). Dedicated bodies like the Ombudsman in Australia, Canada, UK, Brazil, South Africa and tax mediators in Belgium and France look into tax related complaints across many countries. These bodies are independent of the tax administration.

For instance, the US has an independent organization within the IRS called the Taxpayer Advocate Service (TAS) to act as the guardian of taxpayers rights. It protects taxpayer rights and promotes taxpayer confidence in the integrity and accountability of the IRS; and has significant independent powers. It is headed by the National Taxpayer Advocate and has a local presence and accessibility through Local Taxpayer Advocate and Low-Income Taxpayer Clinics.

Similarly the Office of the Taxpayers’ Ombudsman (OTO) established in 2007 in Canada is mandated to review and address the complaints relating to the services provided to a taxpayer by the CRA, thus working to enhance CRA accountability in its service to, and treatment of, taxpayers through independent and objective reviews of service-related complaints and systemic issues.

India’s experience with Tax Ombudsman

In India, the institution of Income Tax Ombudsman was created in 2003 and Indirect Tax Ombudsman came into existence in 2011. The ombudsman was appointed at the regional offices by the Central Government from amongst the serving officers, to enquire into grievances/complaints against the functioning of the tax authority.

Since the functioning of Ombudsman was governed by the guidelines (Income Tax Ombudsman Guidelines 2010 and Indirect Tax Ombudsman Guidelines 2011), and there was no act of law empowering it with different functions, the institution of Ombudsman was ineffective and the decisions only advisory in nature. The Ombudsman could settle complaints either through agreements between the complainant and the tax department through conciliation and mediation or by passing an award, with a token compensation for loss suffered by the complainant not exceeding Rs 5,000.

The institutions of the Ombudsman for direct and indirect taxes were, therefore, abolished in February 2019. The present tax grievance redressal system consists of grievance cells headed by department officials/ Aaykar Sewa Kendras (ASK), e-nivaran portal which is a separate and dedicated window for grievance redressal in the Income Tax Business Application, and CPGRAMS (Central Public Grievance Redress and Monitoring System).

The Taxpayers’ Charter was proposed in the budget last year and came into effect from August 2020. The Taxpayer’s charter include rights and obligations of the individual’s taxpayers.

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