‘Make It Easy’ For Taxpayers

With the launch of the Transparent Taxation platform recently, the government has gone all out to make tax compliance easy, transparent, and hassle-free. While it remains to be seen if this will achieve the hoped for tax compliance, especially from habitual tax-delinquents, honest taxpayers can breathe easy

“Seamless, painless, faceless” were the words uttered by our Prime Minister while launching the platform for “Transparent Taxation Honouring the Honest”. These words describe in a nutshell the very objective of the tax reform scheme. The government has endeavoured to make tax compliance easier for taxpayers through the envisaged reforms. The platform speaks of a framework of reforms such as faceless assessment, faceless appeal and taxpayers’ charter with an emphasis on a hassle-free environment. The government seeks to forge trust between the department and the taxpayer. Under the ambitious faceless assessment and appeal mechanism, the thrust is towards imparting greater efficiency, transparency and accountability, while eliminating physical interface between taxpayers and tax officials.

‘Charter’ commitments

The ‘taxpayer charter’ is a significant step towards assuring the taxpayer of fair, courteous and rational behaviour from tax officials. The tax department is now committed to provide facilities to make the lives of honest taxpayers easy. The taxpayers’ charter also expects taxpayers to be honest and time complaint. The government has pinned hopes that the tax base which is very narrow today will get widened as there will be more voluntary compliance with a technology-based faceless tax system.

The ‘Taxpayer Charter’ says that the Income Tax Department is committed to:

• Provide fair, courteous and reasonable treatment
• Treat the taxpayer as honest, unless there is reason to believe otherwise
• Provide a mechanism to appeal and review
• Provide timely decisions
• Provide complete and accurate information
• Collect the correct amount of tax
• Respect the privacy of the taxpayer
• Maintain confidentiality
• Hold its authorities accountable
• Enable representation of choice
• Provide a mechanism to lodge complaints
• Provide a fair and just system
• Publish service standards and report periodically
• Reduce cost of compliance

It expects taxpayers to:

• Be honest and compliant
• Be informed
• Keep accurate records
• Know what the representative does on his behalf
• Respond in time
• Pay in time

Taxpayers can approach the taxpayer’s charter cell under the Principal Chief Commissioner of Income Tax in each zone for compliance to this charter, if needed.

The features of faceless assessment will be:

• Selection of scrutiny cases using data analytics
• Dynamic jurisdiction absolution of territorial
• Central issuance of notes with Document Identification Number (DIN)
• No physical interface. No need to visit the income tax office.
• Team-based assessment and team-based review
• Draft assessment in one city, review in another city and finalisation in a third city
• Objective fair and just order
• Two-third of the manpower for faceless, and balance for other functions

The government seeks to forge trust between the department and the taxpayer. Under the ambitious faceless assessment and appeal mechanism, the thrust is towards imparting greater efficiency, transparency and accountability, while eliminating physical interface between taxpayers and tax officials

Modus operandi

For the purpose of faceless assessment, there will be a central authority based in Delhi, headed by a Principal Chief Commissioner of Income Tax and this authority will be called the NeAC (National e-Assessment Centre). There will be regional e-assessment centres under the NeAC. Taxpayers will get notices and assessment orders only from the NeAC, just like they do for returns, from the central processing centre in Bengaluru. The NeAC will randomly select the units in various cities for draft assessment, review and finalisation in respect of each selected case of scrutiny assessment.

Taxpayers will never know the location of the units and cities where they are located, and their only correspondence (only electronically) will be with the NeAC. Search cases, fraud cases, benami property cases and black money cases will be exceptions from the faceless assessments and they will have territorial jurisdiction as they have today. The currently existing power of survey of cases by assessing officers stands withdrawn, and only the investigation wings will have such powers along with the power of search.

Faceless assessment has already been launched on 13th August while faceless appeal will be launched in the last week of September. The mechanism of faceless appeal will be known then, but it will be on similar lines to that of faceless assessment.

Ground situation

Let us begin to analyse the reforms proposed with the ground situation. The number of income tax returns filed for Assessment Year (AY) 2019-20 has been 5.65 crore as against 5.42 crore for AY 2018-19. This comes to about 4% of the total population, considering the population is 130 crore. In the last five years, there has been an increase in the number of returns being filed, as earlier the number used to be around 3% of the population. So we can say that the situation is improving but we have to admit that our tax base is very narrow, as 96% of the population do not file returns.

The question to be asked is whether 96% of our people are really poor so as not to be able to cross the threshold limit (Rs.2.50 lakh) for filing tax returns? The answer is that we have poverty, (27% below poverty line) a large section of the population are below the threshold limit or engaged in the exempt activity of farming, but still, a sizable section of the people are not filing returns despite being affluent.

The government expects that with these reforms, these hidden potential taxpayers will join the tax net. The reality is that the number of tax returns is not the number of actual taxpayers, as that is only 1.50 crore. While launching the reforms on 13th August, the Prime Minister too expressed anguish over this meagre number of taxpayers, against a population of 130 crores. To give comfort to taxpayers, the tax department selects only 0.24% of the returns for scrutiny, as against 0.97% five years ago. The faceless assessment and appeal will further make the life of taxpayers more comfortable for those whose cases are selected for scrutiny.

No more fear excuse

It is now for people to respond to join the nation-building activity by paying tax honestly and widen the tax net. The government has taken a big step by virtually maiming the hitherto feared tax department for this purpose. The people now have no excuse that the fear of the tax department keeps them away from the gates of tax offices. If now the number of taxpayers still does not increase, then it can be inferred that the people evading taxes are indeed incorrigible and that they deserve harsh measures as friendly gestures do not mean anything to them.

The reforms of faceless assessment and appeal have been driven by the good intention of the government but it is highly debatable whether they will succeed. On the contrary, there may be a situation where tax collection may even decrease. The proposed scheme has visualised that tax officers are corrupt and hence the faceless proceedings.

To some extent, corruption definitely exists, as in many other government departments. There are departments that are much more corrupt than the income tax department. The situation lies in upgrading the vigilance departments to catch the black sheep by instilling fear.

Faceless assessment has already been launched on 13th August while faceless appeal will be launched in the last week of September. The mechanism of faceless appeal will be known then, but it will be on similar lines to that of faceless assessment

Demoralising effect

The feedback which I am getting from officers, particularly the cutting-edge young officers, is that they are demoralised on being branded corrupt. The demoralised workforce may not win battles when confronted with the challenge of stepping up tax collection.

Secondly, good assessment orders are passed based on facts of the case and this may not be possible when the assessing officers do not know about the assessees. They cannot summon them and record their statements. They cannot watch their body language while recording their statements and making investigations. They cannot go into the field to carry out surveys to collect evidence. It may be true that legal issues can be caught by an online faceless enquiry, but not the hidden facts.

Need for physical interface

Most of the tax evasion cases are linked with bogus claims of expenses for which books of accounts and purchase bills are cunningly manipulated and to unravel them, a serious factual enquiry by motivated and passionate officers have to be made. This is the area where the physical interface can succeed over the technological interface. I say this from personal experience. In one such case of factual enquiry, I had succeeded in breaking a huge tax evasion racket for which I was felicitated by the Finance Minister and given a certificate of merit.

Good enquiry and good orders passed to have a deterrent effect on people evading tax. Search actions have a deterrent effect, but searches cannot be conducted in many cases. It is true that tax collection is mainly due to voluntary compliance of paying advance tax, self-assessment tax and tax deducted at source (TDS). The quantum of tax collection due to scrutiny assessments is not sizable. But it is also true that good scrutiny assessment orders compel taxpayers to file the returns of income correctly. The reforms brought by the government are good but we have to wait and watch for their success.