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Tax on Go


Tax Administration Reforms: Is Integration of CBDT, CBEC inevitable?
By Shailendra Kumar, Founder Editor (June 27, 2013)
Apr 05, 2021

AT a time when the global economy has been going through a very rough patch, the common war-cry, which can be heard from most economies, is for greater tax reforms. With the finances of the treasuries in developed as well as developing countries facing unprecedented crunch, slogans like more reforms and tirade against tax havens have evidently become more common policy statements. In this backdrop, if one refers to the capacity building for Tax Administration (TA), it may sound more relevant and logical. Ultimately, all reforms need 'horses' to ride, and TA is one such horse to accomplish the fiscal policy objects. Keeping this in mind, the noted research institute ICRIER last Monday released the findings of its project called - 'Tax Administration Reform: A Dialogue' - in the form of a book. This book has been edited by the noted taxation commentator, Mr Parthasarathi Shome, who also happens to be the Advisor to the present Finance Minister, Mr P Chidambaram.

This book is basically a compilation of noteworthy inputs culled out of the dialogue held with the taxation exponents from the private sector, tax administrators and taxpayers. To be more precise, several retired tax officials like Mr Gautam Ray, J K Batra and Sukumar Mukhopadhyay and a few serving ones like Messrs Y G Parande, Ravinder Swaroop and Nagendra Kumar from CBEC and, Mr Rajiva Ranjan Singh, Mr Rajul Awasthi and Mr Sanjay Kumar from the CBDT side have contributed their experiences in the form of areas of reforms required in the present day Indian Tax Administration. Although most speakers at the two-day conference took up varied issues like Dispute Resolution, LTU, Computerisation, Risk Management, Administrative Structure and Organisational Structure, some of the thoughts shared by the World Bank Fiscal Economist, Mr Munawer Khwaja Sultan (a former 1974-batch IRS officer from India) are certainly worthy of some fruitful contemplations.

Mr Sultan referred to the dominant trend of integration of various revenue agencies in a large number of countries. He said that out of 43 OECD countries, as many as 39 have opted for a Single Revenue Agency to collect all sorts of taxes - direct as well as indirect. Out of 39, about 18 also collect excise duty (similar to India's State excise), and 21 have gone for larger integration of not only revenue agencies but also social security collections with tax collections. The only country, which has gone back from integration to disintegration is Russia . Some of the countries like the UK and Canada have gone for a little more functional integration by delinking non-revenue function like border management. Since border management has more to do with security, Customs has been integrated with other agencies. Some of the countries, which have gone for integration in the past, are Sweden, Denmark and Hungary, and a detailed study of fall-out of such integration has shown that the cost-benefit ratio is 1:8 . Such integration not only reduces the cost of collections for the governments but also the cost of compliance and the ease of compliance by taxpayers. In case of Revenue Canada, he said that Canada opted for six regional structures - more suited to a federal political structure.

Talking about the Danish experience he pointed out that to make it a smoother integration, they created a post of DG (Integration) and hired an outsider specialist having domain expertise in M&A. Since he was guaranteed a stable tenure of five years he could build a robust integrated agency. Referring to human experience and harmonisation of work culture as big challenges, he opined that a swift integration is possible only when well-developed systems are in place and some degree of operational integration is already harmonised. He also warned against any move to rush into integration which would necessarily lead to failure like in the case of Colombia.

In this background, although none is talking about the 'integration theory' for the Indian Revenue Boards - the CBDT and the CBEC but most experts at the conference believed that sooner or later that is going to be a reality. But before the same becomes a reality what may appear necessary are the efficient preparatory works required to realise integration. For instance, operational harmonisation can be achieved with respect to several functions of both the Revenue Boards. One of the significant functions can be the common Information & Communication Technology (ICT) infrastructure . Even if the CBDT and CBEC can have different returns and assessment processes but nothing stops them from integrating their data-warehousing activities and also common data-mining for better prevention of tax evasion and also inferring intelligence for audit and investigation. Instead of India spending huge resources to build ICT silos for both the Boards, a blue-print can certainly be prepared to integrate the data capturing as per the operational requirements of both the Boards. In fact, this is what is being done for the proposed GST by implementing GSTN. This way they can afford much bigger and robust ICT than they can do it separately. Secondly, they can harmonise some of their data-mining needs relating to common actions like Audit and Investigation .

Similarly, they can have a common HRD Directorate which just needs to maintain two sets of personnel data, and officers with HR expertise can man them efficiently. A common intelligence inputs Directorate can also work well in this case. Depending on the needs of different agencies, this Directorate can filter data. Given the bitter reality of no-sharing culture notwithstanding the 'Let's Share' slogan, the need to share would automatically be obviated, and actionable data can be furnished to all the revenue agencies like Criminal Investigation, Revenue Intelligence etc.

Another area, which has been identified by experts, including Dr Shome, is that of poor analytical capability of the Indian Revenue Boards. Dr Shome says that such capability is at a nascent stage at both Central and State Governments levels. In the Ministry of Finance, a small group of officers in the TRU and TPL carry out the analysis of policy matrix and also the legislative amendments. Thus, in contrast to about 20 officers in India who carry out these critical tasks, the comparable size in the UK is more than 400. In other words, India badly needs to enhance its team size of officers who are engaged in the analytical study of fall-outs of policy changes, and if possible, a different set of officers should be trained for the legislative work. The integrated module steps up the chances of failure in case of a judgemental error in the policy and also creates stiffer resistance for amendment in case of adverse feedback from the field formations. And this ultimately leads to delay in the systemic response framework, which frustrates both the taxpayers and also the tax collectors in the field formations. Indeed, this can be evidently seen in today's context when the Chief Commissioners and Commissioners keep pointing out policy-related difficulties to their respective Boards but the Boards officers ignore most of them, as they do not want to take a step backward even if their policy initiatives have boomeranged!

One more area, which has been identified by experts is that of lack of opportunity to specialise. Although there are many functional areas in both the Boards, which call for specialisation, yet they continue to implement a Transfer Policy, which treats specialisation as an alien concept . Given the complex nature of modern business and tax planning, it is high time the Tax Administration creates sub-cadre of specialists within their own cadres. There are officers who are better suited for investigative, audit and policy jobs because of their educational background; grooming in service by initial posting and, above all, aptitude for certain type of works. Unless revenue officials are allowed to specialise in certain areas, the future revenue collections may be adversely affected.

In a nutshell, there are many more areas where our TA continues to be in medieval age and tends to harm its own long-term interests. Some of the areas are taxpayers' service (Customer service approach); understanding taxpayer motivations; a risk-based approach, strict functional divisions; a modern recruitment system, speedy dispute resolution and a dynamic use of ICT infrastructure. Let's hope our political leadership encourages healthy debate over possible paradigm shift, which is going to be inevitable in the coming years.