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Regulation of tax professionals by different countries

BSKRAO 
on 05 December 2016

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It would be difficult to have a well-functioning tax system without tax advisors. Because most taxpayers are not familiar with the intricacies of tax laws, tax advisors are needed so that taxpayers can fulfill their complicated tax obligations. As informed members of the public, tax advisors also provide input to the formulation of legislation and regulations.

By counselling taxpayers on how to comply with their legal obligations, tax advisors serve an important public interest; the state has an interest in fostering and protecting this role. The role of tax advisors, however, differs from that of the tax authorities in that their primary loyalty is to their client, not to the state. An important function of the regulation of tax advisors is to help strike an appropriate balance between loyalty to the system and loyalty to the client.

Regulation also has the goal of protecting clients from unscrupulous or incompetent tax advisors. Here, the regulatory interest of the state is similar to that in other areas of consumer protection. The danger is that such regulation, instead of protecting the economic interests of those permitted to act as tax advisors, might strangle the free exercise of the profession by creating undue bureaucratic control.

Different countries have adopted different regulatory approaches. Tax advice is typically given by different types of professional’s viz. Lawyers, Accountants & Tax Practitioners - each of which may be subject to independent regulation of its profession. Tax advice covers multitudes of different activities, which can be performed by professionals with different qualifications have different regulatory approaches. Tax Advice involves preparation of statements, filing of returns and acting & pleading before revenue authorities. Professional misconduct in the course of all these three activities are not covered by independent regulation of any professional body in India to make Tax Advisers accountable to the revenue Dept.  It means that, when they are not licensed for all these three activities involved in tax practice, such independent professional body restrained to take action on members for professional misconduct. In India following five class of Tax Professionals are working in the area of Tax Advice.

  • Legal Practitioners                                      
  • Chartered Accountants                                
  • Cost & Management Accountants  
  • Company Secretaries
  • Registered Tax Practitioners in the respective taxation statutes.

Regulating a profession by imposing conditions for admission inevitably reduces the supply potential of professionals. Therefore, a rough balance between supply and demand for professional services should be maintained. Demand for tax advisors will depend on development of economy, legal system and assessment of how many tax payers are required to file the returns. Keeping in mind the basic requirement of balance between supply and demand for tax advice, limitation on resources for training and education are likely to constitute the major bottleneck in the supply of tax advisors in developing & transition countries. To avoid such bottleneck, any regulation should avoid exclusive channels of access to the profession.

When the main requirement is professional’s experience, the law regulating the profession should not give the profession exclusive control over quality standards, but should share this control with the government, enabling the latter to keep channels of access open. When the main requirement is a diploma or degree, the law should provide that the government can organize official examination for candidates without the degree, requiring the same level of competence as the examinations organized by the universities and other institution of higher learning.

The variety of functions performed by tax advisors overlaps the responsibilities ordinarily carried out by other professionals, mainly lawyers & accountant’s viz. “practice of law” and “practice of accounts”.  Because legal, accounting & tax services are closely connected, it is desirable to approximate certain professional rules, which the government should reduce to writing in the law to be framed for Tax Professionals and specifically recognize/allow the members of related professional body for direct admission. The extent of regulation of the tax profession differs from country to country. Three general approaches that can be identified are (1) Full Regulation Model, (2) Partial Regulation Model and (3) No Regulation Model.

(1) Full Regulation Model: followed by USA, governed by US Treasury Circular No.230 of 2011 & Australia, governed by Tax Agent Service Act 2009.

In this model lawyers, accountants, tax Agents/return prepares should invariably apply for registration as per US Treasury Circular No.230 or Tax Agent Service Act of Australia Academic qualification, training & continuing education program are provided in above statute. All Tax Advisors who obtained PTIN/Tax Agent/Bas Agent should sign the return as such & accountable to Revenue Deptt.

(2) Partial Regulation Model: followed by Austria, China, Germany & Japan

In this model every Tax Advisor should obtain license with an exception to lawyers & accountants who are directly admitted. Others to become a licensed Tax Advisor must undergo prescribed program of the course and take an examination.

(3) No Regulation Model: followed by Belgium, Portugal, Spain, UK & India, the provision for tax advice and return preparation is generally unrestricted. With an exception of countries following the US or German Models, representation before tax authorities is relatively unrestricted. Non-lawyers are allowed to represent in administrative proceedings. But in view of latest verdict in the case A.K.Balaji (SC) covering both the litigious & non-litigious matter within the definition of “practice of law” in India, representation of non-lawyers in the administrative proceedings held to bad in law, null & void.

In GST regime, many new assesses will be added-up to the compliance requirement under Goods & Service Tax Act, demanding the assistance of more Tax Professionals.  Hence, it is right time to have unified control & regulation of all players practicing taxation law in India, Tax Practitioners Law is the need of the hour. In India, there are professional bodies passed by the Acts of Parliament, to protect the interest of their members only, but there is no professional body to generate tax professionals to protect the interest of Govt. revenue.  On date, there is no required number of Tax Professionals in India to fully support compliance under proposed GST regime. “More persons in the line of tax practice leads to improvement in quantum of compliance & more revenue to the Government”.  Therefore, I am of the strong view that India requires separate law for Tax Professionals to enjoy legitimate revenue collection in GST regime. This can only be achieved, if the Govt. of India comes out with separate law for Tax Professionals.


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