INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

I-T SCRUTINY NOT TO BE AT TAXMAN'S WHIM

  Individuals and corporates dreading the taxman knocking at the door for a “random scrutiny” may relax. Finance minister P Chidambaram has indicated that random scrutiny would be replaced with scrutiny based on risk assessment of tax payers.

Addressing a gathering of representatives of large tax-payers, Mr Chidambaram said taxpayers opting to be a part of large tax payer units (LTUs) will not be subject to random scrutiny. These companies will be subject to scrutiny only if their tax statements are thrown up by risk assessment based on internationally accepted principles. LTU is a concept where those paying excise/service tax of at least Rs 5 crore or income-tax of over Rs 10 crore can avail of a single-window service — for direct and indirect taxes. Those opting for LTU would also be entitled to services of a ‘client executive' and a whole set of additional benefits.

Later at a function organised by the Indian Banks Association, the finance minister announced a definitive direction for merger of public sector banks — a politically sensitive proposal bitterly opposed by the Left.

He strongly favoured consolidation, asking weak banks to merge with the stronger ones. “I hope before the year is out we have one or two cases of true consolidation....not driven by regulatory concerns, but by the need to acquire size and muscle,” said the minister.

In the face of stiff resistance from Left trade unions, a year ago the government had dropped the proposal to merge Bank of India with Union Bank. There was also a separate proposal to merge Dena — one of the less strong banks, with a bigger player such as Bank of Baroda. Clarifying the concept of scrutiny based on risk assessment, Mr Chidambaram said ultimately the system of random scrutiny would be replaced with scrutiny based on risk assessment for all tax-payers.

The CBDT chairperson MH Kherawala said the new system would be in place from next year. “We will be able to bring in the risk assessment system after we complete computerisation of the department, which should happen by the end of the year” she said.