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Lok Sabha TV- public Forum: Improving Tax Administration



Lok Sabha TV- public Forum: Improving Tax Administration


The Union Budget has suggested some measures to check tax evasion and promote compliance which includes delayed or wrong filing of tax returns and bringing more entities among mandatory filing net among others. It also proposes to penalize the professionals including chartered accountants, merchant bankers and others for furnishing incorrect information. The NDA Government at the Centre has underlined the need to improve tax administration and curb the growth of black economy.


The Income Tax Department has recently initiated Operation Clean Money with the aim to verify large cash deposits made between 9th November 2016 to 30th December 2016. Income Tax Department is also developing a mobile app that will soon allow assessees to pay taxes or apply for PAN using smartphones. The Tax Administration Reform Commission headed by Parthasarathi Shome had suggested that income tax return forms should also include wealth tax details in order to improve transparency. Last year’s Income Disclosure Scheme had provided a one time opportunity to black money holders to come clean by declaring their domestic undisclosed income and assets by paying tax plus penalty at the rate of 45%. World Bank continues to rank India at 172 in the ease of paying taxes among 190 countries. The Economic Survey this year had suggested that the income tax net could be widened gradually while encompassing all high income earners. It also noted that administration could be improved to reduce discretion and improve accountability.

There were some positive steps which were taken and suggested in this year’s budget such as reduction in tax rates for people as well as for corporates giving all over benefit to the taxpayers. Some others are as follows:

  1. Reduction in corporate tax will benefit 96% of return filing companies.
  2. Income tax on income between 2.5 lakh to 5 lakh reduced to 5% this year.
  3. Government reduced Section 87A rebate from Rs.5000 to Rs.2500.
  4. Surcharge of 10% of tax payable on income between 50 lakh and 1 crore from this year.
  5. Simple one page tax return form for individuals earning income up to Rs.5 lakh.
  6. Predominance of cash in the economy makes it easy for the people to evade their taxes.
  7. Cut in corporate tax direly needed for investment from MSME sector.

While it is good that more transactions will be watched upon using technology, it should not terrify people, investors or businessmen. There has to be fear for the law. Unless there is fear, paying taxes is not something people are comfortable to do provided they are educated and feel that they are participating in nation building.

The provision of Section 132 of Income Tax Act which provides for search and seizure has been there on the books for a long time. Search and seizure operations are carried under extreme care. The searches are authorized at a very high level by an officer of the Director General rank. Income Tax Department is the only one among enforcement agencies where searches are to be authorized at this level to ensure that there are no unwanted searches which are not fully justified. In any other enforcement agency like custom, Enforcement Directorate or police, the searches are authorized at much lower level.

Way Ahead:

  1. Now a days, tax department is getting huge information from banks and other organizations. These information has to be collated and mined to facilitate exchange of data between Central Board of Direct Taxes and the Central Board of Excise and Customs.
  2. If high cost is imposed for wrongdoing, tax avoidance or evasion, that might ensure better tax compliance.
  3. Most of the returns are being processed automatically and electronically through computers without any other interface. At most 2-3% of returns are scrutinized and remaining are accepted as it is. Refunds are credited directly to the bank account of the taxpayers.
  4. There is a need to reduce litigations and tax department is working on them. They have created dispute resolution panels which is a body of Income Tax Commissioners. The assessment orders go to them which they have to confirm or modify.
  5. One can also file appeal to the Income Tax Tribunal which has distinguished itself as a fair body.
  6. Instead of increasing the exemption limit there is a need to reduce taxes so that more and more people are encouraged to pay tax who are outside the tax bracket. Identifying debtors rather than debt itself might prove to be a better method.

The Indian administrative set-up did not have any capacity improvement so far both in tax collection and in spending capacity. The JAM (Jan Dhan, Aadhaar, Mobile) initiatives of the Centre are geared towards improving its spending capacity by directly reaching out to people. Similar serious efforts have to be made to collect more taxes.