The economy is on a roll, the stockmarkets are booming and India has become a preferred destination for foreign investment. The buoyancy of the economy is also being reflected in tax collections, which are at an all-time high.

The moment is just right to make some fundamental changes to bring about transparency and accountability in the tax administration.

Tax laws can never be made simple beyond a point as, unlike other branches of law, they touch human activities at many different points. Let us, therefore, hope that in this year's Budget, Finance Minister P Chidambaram focuses on improving efficiency and transparency of the tax administration rather than carrying out petty amendments, which only destabilise a settled position.

The concept of good governance and fair treatment of stakeholders is not applicable only to the corporate world. It applies with much greater force to the government. Revenue collections can be multiplied manifold if the approach of the tax administration is that of a service provider and not a mere tax gatherer.

Technology and transparency

The government has made the right move by initiating e-filing of tax returns. It would be quite in order if the finance minister concentrates in this Budget on using technology to bring about transparency in the functioning of the tax department.

Right to information is recognised as a key right of citizens and a potent tool against corruption and malpractices. The functioning of the tax department can be improved significantly if technology is effectively used to publish the status of all pending refunds, assessments and rectifications on the income tax website.

This Budget should put in place technology that minimises human intervention in the processing of tax returns, thereby reducing any potential for abuse. It would not only be a great relief for taxpayers, but also for the tax department. Cases which have not been picked for scrutiny can be processed electronically and refunds issued without the assessee having to interface with the tax department.

Grievance redressal mechanism

There should be an effective system for resolving complaints that is responsive to the genuine difficulties of taxpayers, particularly with regard to receipt of refund and carrying out of rectifications. The establishment of the tax ombudsman, who functions independent of the tax administration, has inspired confidence among taxpayers.

No new taxes please

The tax rates are down to a reasonable level, but the cost of compliance is heavy for the taxpayer. Small taxpayers are wilting under this burden. It deters taxpayers from voluntarily entering the tax net. Chidambaram has introduced the security transaction tax (STT), the banking cash transaction tax (BCTT) and the fringe benefit tax (FBT). We certainly don't want another tax in this Budget -- it will be the proverbial last straw on the camel's back.

Fringe Benefit Tax

The harm that this tax has caused to the image of the government far outweighs the benefit in terms of revenue collection. FBT should be scrapped in totality as it unnecessarily burdens the assessee with additional complexities. If the issue is revenue collection, then corporate tax rate can be increased by 1 per cent.

Rate of tax and threshold exemption

Tax rates are unlikely to fall, but the surcharge should be removed completely as it was meant to meet exceptional contingencies and was a short-term measure.

Considering the level of inflation, the threshold limit should be raised from Rs 1 lakh to Rs 1.5 lakh and the limit for senior citizens from Rs 1.85 lakh to Rs 2.5 lakh.

Section 50C

One of the most unfair provisions in the Income Tax Act is Section 50C. It takes into account the value adopted by the stamp authorities while computing capital gains in case of transfer of land or building. In doing this, it ignores the consideration actually received, which could be much lower for various commercial reasons.

This really amounts to taxing notional income which has not been earned, disregarding the actual negotiated price. The stamp authorities do not take into account factors like the relative bargaining strengths of different people, market conditions, specific features of the property and distress sale. This section is unfair for genuine sellers as they are taxed on incomes they have not earned. Section 50C needs an unceremonious and permanent burial.

Salary

The salaried class has very little scope for claiming any deductions or exemptions. Standard deduction was justified on the ground that it compensated the employee for at least some expenses that he would almost certainly have to incur from his own pocket in the course of employment and for maintaining his competitiveness in the job market.

Let us hope that standard deduction is restored at the raised level of Rs 60,000 and is made applicable across the board to all employees.

Capital gains

Today, the assessee has the option of substituting the fair market value (FMV) of an asset as on 1 April 1981 in place of the actual cost of the asset for the purpose of calculating long-term capital gains. This date of 1 April 1981 was substituted for 1 January 1964 in 1986.

Surely, it is time now to discard the date of 1 April 1981 and give the assessee the option to substitute the FMV as on 1 April of the tenth year preceding the date of sale of the asset.

Interest on borrowings for acquiring shares

Presently, dividend declared by domestic companies is exempt from tax and, therefore, interest paid on borrowings for investment in shares is not allowed as a deduction against dividend income.

However, in reality, dividend is not exempt from tax as the company declaring the dividend is subjected to dividend distribution tax on behalf of the shareholder. Therefore, in all fairness, the interest paid should be allowed as a deduction to the assessee against his total income.

Interest paid/received

Interest paid by the government to the assessee is chargeable to tax while interest paid by the assessee to the tax authorities is not allowed as a deduction in computing his taxable income. This is clearly unfair and interest paid by the assessee should be allowed as a tax deductible expense just as interest received is considered taxable income.

Let us hope that the amendments proposed by the Finance Bill this year are founded on equity and fairness and that sound economic rationale is not sacrificed at the altar of political expediency.

The author is a member of the Bombay Chartered Accountants' Society (www.bcasonline.org)