NEW DELHI: Indian taxpayers have a litany of woes to relate about the tax system, ranging from arbitrary tax demands and high-handed behaviour, to complex and vaguely worded tax laws. Firms have also been complaining about rising instances of ‘tax terrorism’ which have rendered the country unfriendly to business. It was in this backdrop that the Tax Administration Reforms Commission (TARC), headed by Parthasarathi Shome, was constituted in August 2013. The committee had suggested far-reaching changes for a customer-focussed tax regime in India.
S Mahalingam, a member of the Commission and former CFO of Tata Consultancy Services, spoke at length to Business Line on the impactful report. Excerpts from the interview:
One of the fundamental changes suggested in the report is the abolition of post of Revenue Secretary. You recommend that the powers be vested with the CBDT and CBEC. Why?
The Revenue Secretary usually comes from the civil services and thus brings with him little experience or familiarity with tax laws and administration, particularly international practices, which are increasingly central to tax policy. Yet he finally signs off on all the key policy decisions of the department. Usually, he tends to focus on the administrative aspects, rather than modernising the tax system. To oversee the tax administration, we have instead suggested a Governing Council to oversee the two Boards, with representatives from the industry as well.
Our interactions showed that there is phenomenal capability within the tax department on policy formulation. Good policy cannot be formulated without analysis and experience. This cannot come about if you rotate officers arbitrarily every three years. Tax officers must be allowed to develop specialisation in their respective fields. There is a need for augmenting their decisions with data. So we are not just against generalists at the Revenue Secretary level, we are against them at all levels.
The report strongly criticises aggressive revenue forecasts made in the annual budget, which are often missed. It notes it is the unachievable targets set for tax officers that often results in ‘tax terrorism’. How can this be addressed?
When you formulate policies that affect so many taxpayers, they need to be backed by rigorous analysis of data. But such analysis seems to be completely absent in India. No impact assessment is carried out before changing tax laws. Nor is there any assessment of costs or benefits after the change is implemented. This is a key reason why the tax system completely lacks customer focus.
Take the simple case of tax projections which are made each year in the budget. They are often unrealistic. Yet this becomes the target which percolates down the department. In March, the department holds back refunds due to taxpayers or calls them up asking for higher advance tax payments. This is quite a flawed approach to tax collections. Yes, you may be meeting the number, but at the expense of taxpayer interests.
Tax projections need to be backed by analysis. If you are assuming a certain tax buoyancy based on a certain GDP growth, it is necessary to go back into the components of that GDP growth to see if the projections are realistic. If it is agriculture which is contributing to growth in a specific year, that will not lead to tax buoyancy. But today, such projections are made without really using the rich data that is available with the tax department because there is no systematic data warehousing, data mining or people who can ask the right questions. Therefore, tax projections end up looking like simple excel sheet forecasts, backed by no real data.
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