The Hindu Business Line : Admin needs more than minimum attention

TAXPAYERS have long been yearning for a helpful tax administration.. The character of Indian taxpayers is not very different from that of their counterparts abroad. The essential difference lies in the Revenue department's approach in matters concerning the filing of returns, the summoning of taxpayers to the I-T department and the inordinate delay in issuing refunds. No individual or corporate taxpayer is prepared to voice the grievance openly for fear of reprisal. Often, High Courts have admonished the tax administration for commissions and omissions.

It was the Kelkar Task Force that first highlighted the laxity in tax administration as one of the causes for non-compliance. The Task Force famously said that the tax administration is tax policy. For the first time, a high-level task force focussed on the administration rather than suggest amendments to the law to check tax evasion. Despite tall claims, the tax-GDP ratio in the country has not improved. The OECD countries have brought out a 70-page booklet containing guidelines for improving tax administration. It suggests that implementing tax policy in an increasingly globalised world is becoming more challenging for tax administrators and has recommended the establishment of a Committee on Fiscal Affairs (CFA) and a forum on tax administration.

The study points out that there is a clear trend among member-countries to organise tax administration operations principally on `functional' (as opposed to tax or taxpayer) basis. About two-thirds of the member-countries have complemented their largely functional structure with a dedicated organisational unit responsible for their largest taxpayers.

Tax burdens across the OECD countries range from 20 to 50 per cent of GDP. In 2001, the OECD average itself was 36.9 per cent as per data released in 2003. The corresponding figure for the US is 37.3, the UK 36.5, Switzerland 51.4, Germany 36.8, France 45, Denmark 49.8 and Belgium 45.8. This is inclusive of both direct and indirect taxes.

India's tax collections are yet to touch 10 per cent of GDP. Only recently have the direct tax collections improved as a percentage of the total tax. Even so, it is nowhere near the contributions in other countries. In India, the administrative costs are also high. The cost of collections in most of the OECD countries has been falling in the past three years; it is now 1 per cent or lower.

What can be done to stimulate the tax administration into action? Much time is wasted processing infructuous returns. Only in 2004 did the Central Board of Direct Taxes introduce the system of the annual information return (AIR). Income-tax law requires persons or authorities who enter into financial transactions to file an AIR with the tax authorities. Rules listing out the nature and value of financial transactions will be notified shortly.

The tax information network will digitise the AIR and try to match the same with personal income-tax returns. Simultaneously, financial institutions and stock brokers will, henceforth, be required to report non-cash transactions totalling Rs 1 crore a month to the financial intelligence unit. These are measures that should have been in place at least a decade back.

Information reporting and matching through computerised records will provide an effective tool to verify the reported income and return filing obligations. Last year, in the US, 1.3 billion such reports were received and matched with taxpayer records. The programme entailed 4.3 million taxpayer contacts (including 2.1 million in respect of non-filing of returns) and resulted in additional assessments amounting to $5 billion averaging almost $1,200 per contact.

Now that AIR is in place along with TIN, the question of whether individuals not into business/profession should be called upon to file their income-tax returns year by year arises. In several countries, employees need not file returns since TDS takes care of the tax obligations. Non-salary income of the employee can always be reported to the employer who can, in turn, incorporate the same in the AIR or other returns being filed in the first quarter of the financial year.

This will reduce the workload of the department considerably and relieve such individual taxpayers of the unpleasant task of visiting income-tax offices for filing their returns.

The tax administration can afford to be cordial without being overtly friendly, correct without being legalistic and helpful without being demanding.

(The author is a former Chief Commissioner of Income-tax.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Urea ready for more reforms

Great Budget expectations — Helping the economy take wings

Admin needs more than minimum attention

Truckloads of confusion

On shore, but at sea

Tax implications of software sale

In the aftermath of a disaster

Squeeze water off Chinese data, add a dash of guesswork