The new Taxation Commission and settling tax appeals

Continued from yesterday

C. Gaston Perera

What is required are persons well-acquainted and familiar with these areas of tax law and accounts who have the capacity and the understanding to contribute something meaningful and worthwhile other than their mere presence.

The lack of such an understanding would lead to an undesirable reliance on the legal adviser and the determination of an appeal not really being that of the Board. In fact the ultimate test of suitability to serve on a Board should be the capacity to write the determination of an appeal that has been heard. It would be few who would measure up to such a standard.

The conclusion that arises from this analysis is that after 75 years the requirements originally postulated for the Board need radical change.

A suitable change that is possible is the adoption of the whole system of appellate tax tribunals operative in the UK and not merely one part. There are two parallel tribunals there. In addition to the General Commissioners on whom Huxham modeled the Board, there are also the Special Commissioners. While the General Commissioners are local businessmen, the Special Commissioners are suitably qualified persons.

The General Commissioners are laymen as far as tax knowledge is concerned. The Special Commissioners are experts in tax law and procedures.

The Board of Review also could thus have two branches. Persons who are anxious to be included in the Board for reasons of status or for some occupation in retirement could be sent to one.

The simpler tax appeals, those that involve only the quantum of income issues that concerned Huxham; or where the tax in dispute is not considerable; appeals where no special knowledge of tax law, judicial precedents or accounts is required and the issues do not require much effort to understand could be referred to this branch for adjudication.

Appeals of a more complex nature, appeals where large amounts of tax are in dispute, appeals where a familiarity with tax principles and judicial precedents are essential could be referred to the other branch. Such a bifurcated Board would ensure that important questions of law receive the careful consideration of persons who are really competent to do so; who understand the issues involved; who have the background and capacity to bring to bear on these issues their special knowledge; and each of whom are capable of writing a determination on the appeal they have heard. Such a bifurcated Board would ensure that important issues are not left to a legal officer to decide and write determinations.

Such a bifurcated Board would ensure that important issues are really decided by its members. It would also be a measure that would ensure that revenue is not lost because its members will really understand the issues, the law, the judicial precedents and the accounting involved.

But even in such a bifurcated Board there is another issue that requires careful consideration. This relates to the composition of the separate panels to hear appeals. As it happens now the three members of the Board of Review who are selected to hear a particular appeal and who compose such a panel are, ostensibly, 'nominated' by the Minister.

Their letters of appointment certainly say so. Of course no Minister ever does it. Hence, the fact of the matter is that which Board Member is to be nominated to hear which appeal is actually done by the Department itself.

The names are subsequently sent to the Ministry for approval. On what basis the Department makes its choice is little known. But there is something in this procedure that is intrinsically repugnant to transparency and even to natural justice.

To put it in extreme terms it is like the accused selecting his own judges. If justice must also seem to be done, then the Department must not even seem to 'fix' Boards. But the very fact that no clear, open and transparent system is apparent can easily throw the Department open to such a charge of 'fixing' the Board, of appointing members who for whatever reason - ignorance, perhaps - would hold with the Department. A procedure must be devised and strictly and openly adhered to prevent the Department selecting the people who are going to adjudicate on appeals against the department. A perfectly simple and transparent system of selecting panels would be to select the members in rotation.

The final issue that requires consideration relates to the present structure of the appellate process. It is a gradated process where a taxpayer aggrieved by the assessment of his income has to prove the same case twice at two different levels within the hierarchy of the Department itself.

He has first to justify himself to the assessor who made the assessment. If he fails - as is normal - he has to face the Commissioner-General himself.

It would be interesting if the Commissioner-General could in his next report tabulate how many appeals were heard by him or his deputies and how many were dismissed. The fact of the matter here too is that on all but rare cases both the Assessor and the Commissioner-General have only one view, one interpretation of the law and that is the departmental interpretation.

The implication of this is that the hearing before the Commissioner-General is a duplication and is therefore redundant and to the taxpayer a waste of time, money and convenience. It is to streamline their appellate procedure that in the British Tax System this intermediate gradation is not there and an appeal goes direct from the Assessor stage within the Department to the General or Special Commissioners outside.

The hearing before the Commissioner-General here, therefore, is a gradation in our appellate procedure that could well be dispensed with.