personal finance

Be a service provider: Income tax department has to stop being judge, jury and executioner


By R Prasad

The President of India, while welcoming the 71st batch of the Indian Revenue Service, stated that income tax law has to be made simple and the income tax department should be a service provider.

To bring this about, the first and foremost aspect is that officers’ attitude has to change. They cannot assume that every taxpayer is a tax cheat. In the department, officers are told that when two views are possible, err for the benefit of revenue. These ideas need to change for which training modules in the National Academy of Direct Taxes (NADT) have to be redesigned.

Harassment of taxpayers is also caused by fixing collection targets for individual officers. When 90% of collection comes from advance tax and TDS, 5% from self-assessment tax and only 5% from post-assessment collections, there is no necessity to allot collection targets to individual officers. The US did away with individual collection in 1959, but tax collection has not stopped.

If collection targets are fixed, officers make excessive assessments and collect taxes out of illegal demands. CBDT has further aggravated the situation by stating that if 20% of the demand is paid, the balance can be stayed till first appeal. There are cases where such excessive demands are raised that taxpayers are not able to pay 20% of the demand. This leads to harassment in the form of attachment of bank accounts and properties. When the taxpayer wins in appeal, the files in respect of the attachments are misplaced and taxpayers suffer more harassment.

Even in appeals before the commissioner (appeals), the supervisor officers impress on the commissioner that the appeal should be dismissed so that the department can recover the illegal demand. Supervisory officers are able to enforce their view as they give threats of vigilance and bad reports.

Another area where taxpayers suffer is the credit of taxes paid, rectification orders and giving effect to appellate orders. This is happening primarily because of shortage of 25,000 staff members in the department. Another reason is that we have transited from physical records to electronic records and as the physical records are lost, giving credit for taxes, rectification and so on becomes difficult.

The problem of service to the taxpayers is not going to be solved by public relations measures. There is a public perception that the income tax department (ITD) is an out of control agency systematically abusing taxpayers. Ineffective enforcement is unfair to honest taxpayers. Service to taxpayers is necessary as it affects the lives of millions.

Effective call centres can be set up by outsourcing. ITD cannot be an agency for instilling fear among taxpayers, which can be used as a political tool. ITD should not be judge, jury and executioner. Extracting unfair taxes ruins lives, families and businesses.

ITD should design a taxpayer bill of rights in consultation with stakeholders. Abuses occur because the officers try to inflate their enforcement statistics. In order to reduce cost of compliance the number of filings from taxpayers must be reduced. Implementation of studies carried out by CBDT is also needed.

There should be more interaction between officials, tax practitioners and business groups. This would increase the credibility of officers with taxpayers. In India, as in the US, collection should not be a measure of individuals’ performance. The three important measurements should be – (1) customer satisfaction (2) the business result for ITD (3) employee satisfaction and its relationship with productivity and business measures.

Many tax rules are contrary to common sense and without any idea of ground realities. The cost of compliance for small businesses needs to be decreased. Electronic filing of returns has to be encouraged. The accrual method of accounting needs to be prescribed over a particular turnover. Services need to be improved by commitment and not by decrees.

In order to improve services, reorganisation is necessary. In the good old days, there were no computers or net and communication was difficult. Therefore the work was done through small geographical units supervised by layers of management. The new design has to be consumer based. The work has to be done by the functional units which exist in India such as – salary circle, corporate charges, business circles and exempted units. In the ITD, appeals and criminal investigation need to be strengthened. Reorganisation has to be such that the organisations develop powerful values and behaviour, have respect for the individual and insulate officials from political influence.

Another area which needs improvement is computerisation. The system has to be a robust one with large storage and high speed. Proper bandwidth for this purpose is necessary. As far as possible the use of paper should be reduced. Call centres should be able to do the work online. A period of three months should be fixed for the processing of all returns from the date of receipt.

Selection of cases for tax scrutiny should be based on attacking tax shelters such as agricultural income, investment companies, donations, penny stocks, foreign tax shelters, use of foreign credit cards and tax deductions.

Tax is necessary for civilisation. Tax is collected for the people of the country. We have to treat each individual well because without individuals, there would be no taxes and no tax department. The Constitution of India is a social contract of the people of India and as tax flows from the Constitution, we need an efficient and just tax system for the benefit of the individuals of this country.

DISCLAIMER : Views expressed above are the author’s own. The writer is former Chairman, Central Board of Direct Taxes (CBDT)





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