Keeping the state of public finances and the accountability at the center, Center for the Study of Finance and Economics (CSFE), IMPRI Impact and Policy Research Institute organized a #WebPolicyTalk on “Tax reforms and the Intention of the Government” on May 10, 2021, to discuss the pertinent issue of tax reforms in India.
Our esteemed speaker for the session was Mr. Ashok Sinha, Retired Vice Chairman, Tax Settlement Commission, Department of Revenue, Ministry of Finance, Govt. of India. The session was chaired by Prof-Atul-Sarma, Distinguished Professor, Council for Social Development (CSD), New Delhi; Former Member, Thirteenth Finance Commission.
Setting the tone for the Discussion Prof Atul Sarma spoke about the issue of accountability in the theory of taxation, which can be viewed from the perspectives of two groups- Government and Taxpayers. Income taxpayers want to see how their money is being channeled, so Tax compliance becomes better if the taxpayers are aware of how their money is being spent. Tax administration by the government is extremely important which depends primarily on tax design.
Indian Tax Systems
Mr. Ashok Sinha addressed various challenges in Tax reforms and accountability. Lack of political will is the major issue. Democratic Compulsions, Passion for controls and Federal Structures are some of the excuses given by the government for not restructuring or selling off public enterprises that are underperforming.
Every developed and developing economy embarks on tax reforms to smoothen its business activities. The IMF and World Bank developed a comprehensive module to study the strengths and weaknesses of tax administration called TADAT and more than 70 countries have availed themselves of the benefit of TADAT. Tax reforms in developing economies, both in legislative form and management functions must be undertaken.
Indirect Tax Systems
The Indirect tax system in India has now been simplified into GST (Goods and Service Tax), effective from 1st July 2017. A GST Council has been formed that has the power to rationalize and change rules. During the last three years, it has issued 760 notifications and 380 circulars. Out of the total number of taxpayers below Rs 1.5 Crore turnover, all admin control over 90% taxpayers, is with the state tax administration and the rest with the Central government.
In terms of GST Compliances, 14 different forms are there for filing returns. Monthly and quarterly returns are filed based on certain criteria. Some of the tax reforms required are:
- Clear demarcation of roles between state and central government officials.
- Redeployment of surplus manpower.
- And Cost of tax collection needs to be addressed.
Direct Tax Reforms
Direct Tax Reforms were initiated way back in 1995, including the Computerization of departmental activities – assessment, scrutiny, enforcement, and matching of data. Allotment of a unique number to taxpayers, PAN, and recently faceless assessment has also been introduced.
Some of the key roadblocks include:
- Multiple tax amendments vide circulars, legislative changes-lead to complex compliance,
- Lurking fear in the minds of taxpayers,
- Frivolous notices being sent to taxpayers,
- Procedures laid down for reopening of completed assessments are largely not followed,
- Appeal procedures- long and tedious-Time limit to resolve appeals before CIT (Appeal) must be given,
- Dispute Resolution Process (“DRP”) is not successful and many more.
Key Human Resource Reforms Required
The bureaucracy and the officers are dependent on the clandestine support of taxpayers and tax representatives in order to perform certain statutory functions in a limited time. Lack of infrastructure support to host visitors and staff exists. Most infrastructure proposals get rejected on frivolous grounds and despite hierarchy, there exists no accountability.
We have to look forward to the success of great developments like faceless assessments, that will bring some improvements in the system.