My article, originally published in the Telegraph newspaper: https://www.telegraphindia.com/opinion/a-tax-net-for-equity-and-justice-250882

We, the fiscal citizens of India…

How the Income Tax Department is attempting to bring about a tax compliant society

By: Saagar Srivastava

“It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth, only to give it back a thousand-fold.”

Kalidas in Raghuvamsa, eulogizing King Dalip

Since time immemorial, taxation has remained saddled with moral dilemmas. Explaining to someone why she must pay taxes is simple; developing a conviction within her for the same is daunting, as portrayed starkly in the scene in the movie Raid where the protagonist screams from a loudspeaker, in vain, to make the raging mob see reason.

In 1996, the American Economist Richard Musgrave coined the term fiscal citizenship – taxation is an essential constituent of the social contract between the state and its citizens. Being a citizen involves timely and accurate discharge of taxation liability, so that the state machinery can be duly empowered to carry out its developmental and regulatory obligations. In the 1940s immigrants to America proudly paid their taxes, as it lent them a sense of partnership in the wider social community. This simple yet powerful concept, vigorously pushed by scholars such as Lawrence Zelenak, was effectively used by tax administrations across Europe to ingrain in their citizens’ minds and hearts the need for paying taxes. The social contract applies to the Government too, which must demonstrate robust fiscal tax connection – the direct correlation between greater revenue collection and better public services – often extremely challenging.

In India, the role of the Income Tax Department (ITD) in bringing about greater equity and justice in society through progressive tax policies needs to be more widely understood. By its very nature, income tax is a progressive tax, and thus addresses social inequities. But more importantly, it is the ever changing mandate of the Department, from being primarily a revenue collector, to an institution that is at the forefront of the crusade against corruption, black money, money laundering, benami property and tax evasion that has started resonating with the public. Such a wider anti-corruption mandate should encourage greater compliance on part of the taxpayer, as she starts observing a direct linkage between her contribution, and the emergence of systemic solutions to deep rooted problems of corruption and black money.

‘Customer centricity’ and better taxpayer services

A crucial feature of the ITD that distinguishes it from its peers is that it is the only law enforcement agency in India which is also, in fact first, a service provider. The Department, especially over the last decade, has made ‘customer centricity’ its defining ‘mantra’. Thus, achieving continuous ameliorations in taxpayer services has become an obsessive pursuit. Such endeavours are aimed at reducing the cost of compliance for taxpayers, thus facilitating voluntary compliance. Chanakya’s timeless wisdom from the Arthashastra about how taxes must be collected in the same manner as the bee collects honey from flowers – without causing them any pain – is apt. Through greater use of technology, and focus on institution building, an enabling environment has been put in place for taxpayers. The Centralized Processing Center in Bengaluru has revolutionized tax administration in India. Almost everyone now files returns electronically and pays taxes online, the Refund Banker Scheme ensures timely and direct bank credit of refunds, PAN/TAN allotment has become seamless, ITR forms are being simplified through Sahaj, Aaykar Seva Kendras have spread to far-flung areas, Tax Return Preparers have been hired for helping small taxpayers file their returns at a nominal cost, and the ITD has a comprehensive, user-friendly website. Computer Assisted Scrutiny Selection selects cases for scrutiny through an algorithm based application pre-fed with selection parameters (generally only 1% of returns are picked), thus eliminating the discretion of an Assessing Officer to cherry-pick cases. This is the first year from which all scrutiny cases are going to be assessed electronically through E-proceedings, thus leading to faceless interaction with the officer. Online grievance redressal platforms such as E-Nivaran and CPGRAMS have ensured time-bound disposal of grievances. Besides, multiple communication channels exist – email, sms, call-centers, Aaykar Setu mobile app.

Needless to emphasize, a lot still needs to be done. Simplifying the complex Income Tax Act for stakeholders to comprehend, so that they need not rely on expensive tax practitioners, is crucial. The Department is also taking baby steps at establishing greater positive contact with citizens through outreach programmes, which go a long way in reducing fear and mistrust amongst taxpayers, thus resulting in a more tax compliant society. Perhaps the biggest stumbling block for ITD is the perception, though often unfounded, in the minds of the ordinary citizen that the Department fries the small fish while letting the big fish get away. In an age where perceptions make or mar reputations, the need of the hour is for ITD to project itself as a class-neutral and apolitical Department that fears or favours none. 

Better services must imply voluntary compliance

A logical corollary of the qualitative leaps in taxpayer services has to be enhanced levels of voluntary compliance. As a conscientious participant of the social contract, the fiscal citizen must discharge her statutory obligations of contributing to the Government exchequer. If the “inner voice” and the moral argument does not seem persuasive, it is worth remembering that complying is in one’s own self-interest, as various Government services, securing licenses, disbursement of loans, visa applications, consideration for awards/prizes, etc. are becoming closely linked with tax returns. This is also the first year from which penalty will be imposed for delayed return filing. Besides, non-filing and “wilful attempts to evade tax” are prosecutable offences under the Act, which can lead to imprisonment upto 7 years.  

The Department is better placed than ever before to discharge its regulatory functions

Possibly for the first time since independence, the ITD is no longer simply playing catch-up. There is plethora of information available with it, which is being used effectively for enforcement, thus making it difficult and costly to evade taxes. Banks, financial institutions, stock markets, property registrars, ROC, etc. are statutorily obliged to share information. Besides, the use of big data analytics through Project Insight, 360 degree profiling of taxpayers, social networking sites, demonetization data, information from intelligence and enforcement agencies, and the Non-Filers Monitoring System are all powerful enforcement tools. ‘Search and seizure operations’, popularly known as IT raids, have become more focused and potent. The noose is tightening around shell companies that exist only for the purposes of providing accommodation entries through bogus share premium, unsecured loans and investment in listed ‘penny stocks’. Enforcement powers enshrined in the Act such as prosecution, prohibitory orders and look-out notice that prevent defaulters from leaving the country (Rs. 2 crore+ was recently recovered by the writer through one such action in Indore), arrest of defaulters, and auction of property/assets are being increasingly resorted to as powerful deterrence mechanisms. Finally, the recently amended Benami Act provides stringent powers to the Department for clamping down on the corrupt, most often the high and mighty. Thus, if despite better taxpayer services, voluntary compliance does not increase, the Department will not shy away from enforcing the law in the interests of revenue, justice and national development.

“Kosha Mulo Dandah” – revenue is the root of administration. For the foundation to be strong, achieving the right balance between treating taxpayers as clients, while ensuring strong enforcement of the law, is paramount. Once this comes true, we can truly aspire for an “Arth se Samarth Bharat” – a beautiful slogan coined by Chief Commissioner Indore – the raison d’etre for one of India’s premier revenue collection and law enforcement agencies.

Article jointly authored by my wife and myself, and published in Firstpost

70 years of Independence: Mapping 'New India' and its aspirations through the eyes of young civil servants

Firstpost   • Aug 14, 2017 18:34 IST

   

By Aditi Garg and Saagar Srivastava

Civil services in India has for long remained a prestigious and much sought after career-choice for precocious, young talent from varied educational and professional backgrounds. Though the motivation to opt for this career varies starkly from individual to individual – ranging from romantic idealism and a genuine commitment to public service to a sheer attraction for the power and pelf associated with the services. Its irresistible charm has held sway for many decades.

However, over the last several years, a new perception has gained ground. That with increasing influence of market forces in all spheres of the civil servants' lives, and the receding dependence on the State for welfare or even sheer survival, their role in society and their contribution to the process of national development has been on the wane.

Representational image. Reuters

Being new entrants to civil services, we realise that nothing could be further from the truth and the life-stories of many a new entrant, including the authors' which we will re-visit later, are a complete antithesis to such a proposition. As the fast-paced changes in India's economic and socio-political fabric throw up newer dilemmas and challenges for young civil servants, our mandate might have changed and evolved, as it should in any dynamic and progressive society, but it has certainly not diminished.

In many ways, an increasingly restless society has resulted in the "fierce urgency of now", which demands an ever greater devotion to duty and ability to 'deliver' on the ground. The perception conundrum cited earlier is unfounded and only a myth, reasons for which are three-fold.

First, for the "magic of the market" to work, we need "enabling institutions", which only the State can provide. In his path-breaking book, The Mystery of Capital, Hernando de Soto argues that only a society that establishes the rule of law and enforces property rights witnesses long run economic growth. There are occasions when the market, in its single-minded pursuit of the single 'p'- profit, overlooks the other two 'p's - people and planet. This calls for sound property rights, effective laws, good governance, and a robust regulatory architecture - all of which lie in the realm of today's cutting-edge administrators.

Second, evidence shows that while economic reforms have lifted millions out of poverty, the gap between the rich and the poor must be reduced without further ado. In an increasingly aspirational society, meeting this objective needs the collective creative inputs of many a public servant, especially the younger lot, who deal with the implementation of varied schemes and are the pivot of success or failure of all government endeavours.

Third, for the teeming millions living at the margins of society, the need of the hour is to build up of their capabilities so they may participate in the prosperity this nation has achieved in the last 70 years. The mandate for this still lies with civil services in India.

A plethora of formidable challenges is faced by present-day administrators. The increasingly complex environment in which public servants operate demand enhanced skill-sets for tackling the cutting edge problems like the environment and climate change, disaster management, trade negotiations, and technological innovations.

In rural areas, the focus has been on the provision of basic services like education and healthcare, income support to the poor, provision of productive assets to the impoverished and securing the future of Young India. In the cities, the challenge has been manifold. With rising populations, the focus is on the provision of sanitation, housing, water-supply; re-orienting urban infrastructure to present-day needs and preserving the sense of 'community life and urban culture'. The unfinished agenda of India @ 70 is to ensure 'access and quality' of services like primary education, public health and basic infrastructure.

As in physical infrastructure, more so in human resources, the administration's real challenge lies. The focus is now on developing private productive capacity, infusing competition and encouraging entrepreneurship. The issues have thus evolved and beckon a relook.

Our battle is not with resource-constraint anymore, but with resource allocation. Be it land, finance or skilled labour, resource redistribution and transfer of ownership of productive capital, are affecting a whole gamut of industries and also our manufacturing might.

While policy direction comes from the Centre, all the action now happens in the States, and more so in the districts, where young administrators now have tremendous scope for modernisation, mediation and monitoring. Innovation happens at the cutting edge and it is here that newer civil servants play a vital role.

The ever-evolving mandate of a public servant can be envisaged through the institution of a Collector. Although in many states the development agenda now lies with separate agencies or the Panchayats and implementation work with the many line departments, it is only the office of the Collector that has true insight and overview of governance, and thus has the role of a prime mover in order to deliver services seamlessly to the citizens.

The Collector continues to be at the fulcrum of all service delivery at the local level, and improving his or her efficiency can greatly impact the delivery of services. In his video conference with District Collectors recently, Prime Minister Narendra Modi acknowledged this when he gave his clarion call for India 2017-2022.

In conclusion, we would like to revisit the earlier point of perceived dwindling relevance of civil services today. Having studied at top institutions in the United Kingdom and after working a few years in London with leading banking and consulting firms, we found our calling in the pursuit of public service.

While newer entrants to the services are inherently driven by a sense of righteousness associated with this vocation, a deep-rooted sense of idealism and romanticism still persists. India is already on the brink of the greatest transformation in its history. As Young India teams up to build New India, it is our collective efforts which will determine the reality of tomorrow.

It is this conviction, that civil services continue to be the beacon of change and more importantly the single most powerful and effective medium of bringing about positive transformation in the lives of millions, that civil servants across the spectrum dedicate their lives to the service of this great nation and her people.

The authors are both young civil servants. Views expressed are personal.