[This is an excerpt of my speech at the Central Excise Day Celebration published by Chief Commissioners of Central Excise and Service Tax Mumbai and Western India Regional Council of The Institute of Chartered Accounts of India. February 2014]
The
fundamental role of tax department always has been to raise revenue for the
government. Over the recent past there has been fundamental shift in the
working of tax administration. Tax administration is attempting see its role as
an enabler in helping the citizen to comply with the tax laws than an enforcer
extracting funds. Thus it has been trying to achieve balance both in taxpayer
service and in enforcement. Towards this it has to give equal importance to
making tax avoidance painful and making tax compliance easy.
Today’s
rapidly changing environment is adding further complexities in tax
administration. Growth in international trade and commerce driven by
globalisation is a major contributor to this complexity. Goods and services are
produced in one country using inputs from a number of other countries and
consumed in a third set of countries. The management and ownership of these
entities are also spread across the world. Identifying the taxability and fair
computation of taxes become a cumbersome and complicated matter.
The other
challenge is related to taxing of online transactions. With the trade happening
completely in the virtual world there is a need to revise and refine the laws
and rules for fair tax computation and easy and practical enforcement.
Similarly, the development of tax shelter products and use of tax havens is
another challenge, which emanates from globalization. The new technology
solutions and boundaryless commerce open new avenues of frauds and tax evasions
to the unscrupulous
Tax Reform
has to be seen from this paradigm shift in landscape.
There are
various factors that should be taken into account in this reform process They include:
a.
Simple tax system to facilitate
administration and reduce compliance cost: It has been proven across the world that simple tax systems will
improve compliance and make tax administration more efficient. A simple tax
system will have few taxes, limited number of rates for each tax and limited
exemptions. Forms and Procedures would be simple. Information required on tax
forms would be kept to a minimum and readily available from taxpayer’s books
and records. Taxpayers, to the extent possible, may not be asked to present
data that would require them to keep special records for tax purposes.
b.
Taxpayer Communication: A well thought out communication
strategy is a key element of taxpayer service by making information available
to and addressing concerns of the taxpayers and business community
Objectives of Communication Strategy: The broad objectives are
i.
Complete
coverage: Ensure communication reaches all potential taxpayers
ii. Uniform
understanding: Ensure there is uniform understanding of Laws and compliance across all taxpayers
iii.
Mobilise
taxpayers community for registration and voluntary compliance by preparing an
environment to overcome apprehensions at
the taxpayer’s end
iv. Sustain the
momentum: Reassure and amplify positive experiences of registration and
voluntary compliance to interest and excite large taxpayer community to follow
suit
Channels: Today multiple channels are available to
reach the citizen. The department should have a well thought out strategy to
use these multiple channels instead of just limiting to statutory publication
in official communiques..
In addition there
should be a channel to provide reliable answers to frequently asked queries and
doubts that would be generated by the public awareness campaign
c.
Taxpayer Service: The quality of taxpayer service will be a
significant determinant of the taxpayer compliance. Taxpayer services shall
adopt a customer centric approach and shall foster to establish the following:
i.
Consistency
of service between what is expected by taxpayer and what is perceived by tax
authority.
ii.
Translation
of service expectations into service specifications
iii.
Adherence
to service specifications consistently during service delivery
iv.
Consistency
of service delivery with taxpayer communications
The elements of taxpayer service will include:
Taxpayer Rights and Obligations: Taxpayers rights and obligations and the
procedures for redressal of their grievances could be explicitly declared and
published and adequately communicated
Ease in compliance: The policies, forms and procedures
relating to compliances could be easy to understand and easy to comply with.
i.
All key
administrative processes including the procedure for taxpayer registration, tax
payment, filing of tax returns/ grievances/ appeals and applications for
rulings etc could be automated, reducing the need for manual intervention by
the taxpayer and the tax administration to the barest minimum.
ii. The tax
department should allow taxpayers opportunities to provide feedback relating to
administrative policies and procedures.
iii.
The department
could continuously strive to refine administrative processes from the
Taxpayers’ perspective so as to minimise compliance burden
Service Level Standards: The department could publish service
standards with respect to various services to taxpayers like assessment,
grievance resolution, refunds and be accountable to honour these service
standards. The extent to which these levels are achieved may be made a part of
performance measurement for the department and it may be made available in
public domain.
Reliable and up- to-date taxpayer
information
i.
Provide
taxpayer information (self)services – a real-time convenient online login-based
secure access to taxpayer on its registration details (e.g., legal full name,
physical address, date of incorporation, industrial sector), tax payment
history, status of returns, refunds, etc, specific communications from the
department and with an online facility
for query and grievance handling.
ii.
Up-to-date
information relating to law, procedures and regulations could be made readily
available to taxpayers in a simple and coherent manner through a mix of
identified channels including online modes.
iii. The
department could consistently deliver quality information and respond to
inquiries and requests from taxpayers in an accurate and timely fashion to help
them meet their obligations;
iv.
The
department could aim to resolve Taxpayer queries at the first point of contact,
avoiding the need for subsequent contacts on the same subject
Assured confidentiality and privacy of
taxpayer information
i.
The
department should use taxpayer information only to the extent permitted by law;
ii.
Privacy of
taxpayer information will be protected
to a level consistent with the standards
applicable to comparable public and private sector organisations such as banks
Time bound Grievance redressal A Grievance Redressal Mechanism to be
made available to taxpayers for time bound redressal of grievances.
Education: Continuous education of various
stakeholders is critical for any tax administration. Therefore it is imperative
to have a focused effort in educational initiatives that creates an ecosystem
to help augment the department’s capacity to maximise the outreach.
Certification Program: The department could consider establishing a
certification with programs tailored for finance professionals responsible for
tax compliance, tax agents etc. This will help in ensuring a certain level of
learning and provide a bench mark to measure level of expertise.
d.
Enforcement and Compliance Management: Simple tax system, ease of compliance, self-assessment
and high quality taxpayer service will make compliance painless and incentivize
compliance. Equally important are means to make non-compliance painful which is
an equally important lever for better compliance.
i.
A robust
compliance management mechanism will identify the risks associated with
non-compliance, and strategies should be developed to mitigate and counter
those risks.
ii.
These may
involve interventions by way of profiling risk, auditing, developing
third-party information sources, general anti-avoidance efforts, prosecution
and proposals for legislative change.
iii.
The department
should monitor compliance activity to detect and deter noncompliance.
Development of information system to
counter risk to revenue
A well
designed information system with the provision to receive and integrate
financial data from diverse sources and develop risk profiles using data mining
and other profiling techniques will be the main feature of compliance risk
management strategy. The department could take steps to integrate the taxpayer
data in different tax systems. It could also take steps to identify data
sources in public domain and define legal framework to access to key third
Party information (like database of ministries/departments dealing with
corporate affairs in the country, relevant databases of regulatory authorities
in the sectors of interest, etc)
Tackling Tax Fraud
The
department could adopt a zero tolerance policy for tax frauds. For this purpose
it should-
i.
Design and
implement efficient strategies to deal with organised tax evasion and fraud and
prosecute under criminal law persons found involved in fraudulent activities.
In such cases it will use powers of search of business premises and arrest of
suspects.
ii.
Tax frauds
require specialised multi-disciplinary investigation skills including tax
investigations, computer forensics, and criminal investigations etc. Therefore,
the department may set up specialised Enforcement Unit having the necessary
skill sets for investigation into tax fraud and recovery of difficult tax debt.
iii.
The
findings of investigations into tax frauds could also be used for
re-determination and recovery of evaded tax liabilities.
.
e.
People In the current environment with fast-paced change in the business
domain and technology tools it is important that the department has cohesive
strategy to attract, develop and retain resources with the relevant skill set
so as to provide competent and trained managers and staff with high
professional and ethical standards. It should also provide continuous skill up-gradation of its employees. This could to a great extent limit incentives and
opportunities for rent seeking and inappropriate behaviour
Emphasis will have to be placed on proper and continual training and
development of the personnel for achieving professional competence for dealing
with the complex issues in the legal landscape. Training programs should lay
emphasis on behavioural aspects involved in dealing with taxpayers with
courtesy, fairness, and consideration..
The tax
administration thus should evaluate these dimensions on a regular basis and
reform the tax administration if it has to stay relevant and effective. 
