How India's tax system is slowly getting better

By Vivek SinghIncome tax, by its very nature, is based on a delicate social contract between the government and the taxpayer. Complexity of tax laws, high element of discretion in tax administration, and undue focus on search, seizure and probe have sometimes disrupted this social contract and made the process of tax collection somewhat adversarial in nature.Therefore, when chairman of the Central Board of Direct Taxes (CBDT) Pramod Chandra Mody recently remarked that faceless assessment was more important than search, seizure and probe, it symbolised, in many ways, aparadigm shift in the way the department sees its role in a changing landscape. While the rate cut in corporate taxes in September 2019 did capture the imagination of taxpayers and economists, there have been other equally important reforms in direct taxes recently that deserve our attention.In the past, taxpayers have complained about the inability to verify the authenticity of official communication fromthe tax department, excessive human interface and multiplicity of physical visits to the tax office, making themvulnerable to manipulation and rent seeking. There have been several attempts to allay such concerns by making far-reaching changes to the method of communication and the system of assessment and appeals.Every communication of the department — whether it is related to assessment, appeals, investigation, penalty orrectifications — issued from October 1, 2019, onwards is mandated to have a computer-generated unique documentidentification number (DIN). The e-Assessment Scheme, 2019, notified on September 12, 2019, provides for a new scheme for making assessment by eliminating the interface between the assessing officer and the assessee, optimising use of resources through functional specialisation, and introducing team-based assessment. This means that even when the officer is issuing the first notice or a query letter, it is vetted by two layers of superiors, thereby minimising individual discretion.Introduction of dynamic jurisdiction will also help in eliminating multiple interactions with the same tax official.In order to take the reforms to the next level, and to eliminate human interface event at an appellant stage, the Finance Act, 2020, empowered GoI to notify the Faceless e-Appeal Scheme to eliminate human interface in the appellate function of the department between the appellant and the commissioner of income-tax (appeals).Developments in information technology are being leveraged to the maximum possible extent, not only forrendering quality taxpayer services but also to engender ease of compliance.Technology is also being used to impart greater efficiency to the business processes involved, enhance easing of doing business and equip the administration with processed information that can identify and deal with relevant risks.The department has taken determined steps in this realm by introducing pre-filing of income-tax returns (ITR)and an improved Form 26AS.To make tax compliance more convenient, the ITR form now contains pre-filled details of certain incomes, such as salary. The scope of information for pre-filing is being further expanded by including information such as houseproperty income, capital gains from securities, bank interest and dividends.The earlier Form 26AS used to provide information regarding tax deducted at source (TDS) and tax collected at source (TCS) relating to a permanent account number (PAN), besides certain additional information, including details of other taxes paid, refunds and TDS defaults. A return would get selected for scrutiny mainly on account of activities not reflected in the return.All such information is given in a modified version of Form 26AS. It will have information like cash deposit and withdrawal from savings bank accounts, sale and purchase of immovable property, time deposits, credit card payments and purchase of shares. This would help honest taxpayers with updated financial transactions while filing their returns, minimising the chances of the return getting selected for scrutiny.In addition to these reforms, there have been genuine attempts made to reduce litigation through better litigationmanagement and dispute resolution.For instance, the monetary thresholds for filing of appeals at all levels have been substantially raised. The ‘Vivad seVishwas’ scheme is designed to provide for resolution of pending tax disputes.This will not only benefit the government by generating timely revenue, but also the taxpayers, as it will bring toclose mounting litigation costs, and efforts can be better utilised for expanding business activities.The tax administration is making a steady but steadfast shift from being an enforcer to a facilitator, and from opaqueness to transparency. The corporate tax rate cut, simplification of personal tax structure, the commitment towards a charter for taxpayers and the recent systemic reforms signal a paradigm shift in the mindset of tax administration in the country.The overall emphasis of these wide ranging reforms is to design a tax system that can raise the revenue that thegovernment needs in order to achieve its spending and distributional ambitions, while minimising economic andadministrative inefficiency, and keeping the system as simple and transparent as possible.The writer is additional secretary to the finance minister, GoI

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