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.
