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The document summarizes a report by the Indian Tax Administration Reform Commission that comprehensively reviewed tax administration reforms in India. The report addressed issues like organizational structure, business processes, dispute resolution, taxpayer services, capacity building, databases, impact assessments, widening the tax base, enforcement mechanisms, forecasting models, and research capacity. It recommended reforms such as segmenting taxpayers, integrating direct and indirect taxes, simplifying documentation, improving dispute resolution, and establishing specialized taxpayer service delivery. However, the summary argues the report was weak in addressing political challenges to unification and tax simplification in India.

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Puput Waryanto
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47 views3 pages

12 51 2 PB

The document summarizes a report by the Indian Tax Administration Reform Commission that comprehensively reviewed tax administration reforms in India. The report addressed issues like organizational structure, business processes, dispute resolution, taxpayer services, capacity building, databases, impact assessments, widening the tax base, enforcement mechanisms, forecasting models, and research capacity. It recommended reforms such as segmenting taxpayers, integrating direct and indirect taxes, simplifying documentation, improving dispute resolution, and establishing specialized taxpayer service delivery. However, the summary argues the report was weak in addressing political challenges to unification and tax simplification in India.

Uploaded by

Puput Waryanto
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Journal of Tax Administration Vol.

1:1

Tax Administration Reform in India

Review of the Tax Administration Reform in India Spirit,


Purpose and Empowerment Govt. of India, Ministry of Finance,
Tax Administration Reform Commission, 2014, 1264 pp1
Zakir Akhand
The Indian Tax Administration Reform Commission, chaired by Dr Parthasarathi
Shome, was mandated to review the application of tax policies and tax laws in
the context of global best practices and to recommend measures for reforms
required in tax administration to enhance its effectiveness and efficiency. The
resulting four part report is a comprehensive review of tax administration reforms
in India, lucid and well-structured, with a remarkable coverage of practice and
theories. It is an essential reference work for those concerned with tax reform in
South Asia, India in particular. The report has four substantive parts, each being
comprised of several terms of reference discussed on three major themes
reviewing current status, identifying gaps compared with international best
practice, and recommending actions.
Part I addresses the reform issues of organizational structure, business process,
dispute resolution and taxpayers services. Currently, the tax administration
structure of India is divided into direct and indirect tax wings, based on a tax-type
territorial jurisdiction, with little administrative and financial autonomy. Lack of
robust accountability structure and operational business model are argued to be
the major reasons for organizational inefficiency. Suggested reforms include
segmenting taxpayers into different groups, large and small, and designing a
functional work structure. Integration of direct and indirect taxes through data
sharing is proposed as the immediate best solution instead of unification, which
will take place over the next five years. Around the axis of integration and
unification attention is drawn on lateral entry to infuse expertise in the tax
administration and defined careers progression for civil servants with a wellframed code of ethics. In the case of business process: where the present system of
registration and assessment are separate for direct and indirect taxes- a system of
unification and integration
is essential
most effectively through the
development of e-systems and digitalization to streamline collection and refunds.
Equally, simplification in documentation and audit procedure are essential to
ensure that the customs clearance and cross border transactions run properly; the
mere existence of a manual system is not enough. Tax disputes have been
mounting, owing to the lack of accountability in making arbitrary demands by the
assessing officers, who enjoy huge discretionary powers. Retrieving confidence
among taxpayers, with a collaborative approach and improving legislative clarity
with sufficient staff training are recommended. In respect of taxpayer service: the
present service structure is individual tax officer-driven accompanied by ad-hoc
roll-out of some services without any feedback from taxpayers. Specialized
service delivery mechanism supported by adequate budgetary allocation,
independent jurisdictional Ombudsman and customer focused citizen charter
would be essential to make things better. Pre-filing consultations used to assist
1

The original publication for this review can be found at http://finmin.nic.in/the_ministry/dept_revenue/index_tarc.asp


PhD Candidate at the Tax Administration Research Centre, University of Exeter.

138

Journal of Tax Administration Vol.1:1

Tax Administration Reform in India

taxpayers when they need it rather as an enforcement tool after the event (p.57),
as in the case of the UK, Australia and Italy, are considered important. The point
is that taxpayers are to be seen as valued customers, not as robbers, to make the
tax system responsive and responsible.
Part 2 reviews the capacity building and database issues for the customs
department. Given the resources, emphasis on user-friendly modern technologies
backed by risk management tools is needed to prevent fraud and smuggling,
which requires massive regional and international cooperation. To make the
database readily analysable and exchangeable, legislative enactments with layered
authorisation should be in place.
Part 3 deals with three crosscutting issues impact assessments, widening the tax
base and enforcement mechanisms. An underdeveloped area of Indias tax
administration is that neither of the two Boards carries out an ex-ante impact
assessment (p.735). The tax base is narrow and overwhelmed with inadequate
enforcement efforts. The Commission recommends ex-ante and ex-post
stakeholder consultation, using both quantitative and qualitative methods, to
identify the potential impact of tax policy changes. For the tax base to expand,
suggestions include increased attention to withholding taxes, high net individuals,
presumptive taxes, and bringing large agricultural firms and other informal sector
business into the tax net. The synergy in base expansion and tax collection would
be higher if the enforcement schemes focus on both enhancing trust and a
collaborative relationship with the taxpayers along with verification audits of
complex transactions tracked down using risk rating tools. Search and seizure can
only be used in special cases.
The final substantive part is part 4, which has chapters on developing forecasting
models for revenue targets and fraud detection as well as overall research capacity
building for the tax administration. In the case of revenue and arrears forecasting,
a combination of short and long term conditional/causal tax specific models, using
transparent data with periodic review of macroeconomic changes, could be
applied to replace the current unstructured budget making practices. Similarly, the
currently practised silo data and skills management pools need to be better
integrated and buttressed with risk based analytical tools, knowledge sharing and
mutual cooperation. Practical research for tax policy making, except for some
scattered and sporadic attempts, is at a budding stage in the tax administration of
India. A multi-disciplinary evidence-based research body, funded adequately and
linked with external research bodies, is recommended to carry out meaningful
works on all important areas, ranging from compliance tracking to tax disputes.
Knowledge gaps and training needs have been focused as usual in revitalizing the
research units.
These are the bare bones of the analysis and recommendations made in the report.
The power of the report is in the simplicity of presentation and painstaking
coverage of the tax administration, not as much in the theoretical originality of tax
reform literature: none of the recommendations is new deriving much from
international best practice, without seriously delving about the usability of the
reforms proposals in the Indian context. For this reason, this review will probably
have less impact, while being a useful reference work.
139

Journal of Tax Administration Vol.1:1

Tax Administration Reform in India

The reports single structural weakness is that it is top-heavy. While impact


assessment is a useful addition for tax reform, and forecasting models have
proved themselves significant, several other recommendations seem redundant:
research in tax governance could be the single platform to conduct all predictive
analysis on policy impacts and forecasting revenue targets. The chapter on tax
research governance is not an improvement over impact assessment and
forecasting models, and the same issues arise repeatedly staff training and
knowledge gaps, collaboration and trust, integration and mutuality of interest, data
management and techniques, funds and budgetary allocations. All of them could
be discussed precisely in a single chapter for a more user-friendly presentation
and to develop a common conceptual understanding. Taxpayer services, as a
concept, are used loosely and have been much emphasized without drawing a
borderline between service and enforcement, in a country of widespread tax
evasion with a population of over 120 crore , only 3.3 per cent pays tax, (p.
775), and massive tax administration corruption. The report did not add much on
the depth and levels of corruption, an issue India has been long combating.
Two weaknesses in the report are apparent: First, the fragility of the integration
argument rather than unification, a concern more with civil service reforms than
the tax administration. The report remains silent about the inter-cadre rivalry in
India and the vehement opposition to unification, owing to seniority conflicts and
related pecuniary benefits. The VAT-tax merger in Bangladesh failed mainly
because of the strong commotion and the apparent superior to thou attitude of
the VAT administration. Moreover, the provision for lateral entry in the civil
service, an HR practice mainly followed among the Semi-Autonomous Revenue
Authorities, and CFO rather provoke and entrench the segregation of the income
tax and customs wing even further. Second, Indias tax legislation is notoriously
complex, one of the lengthiest in the world, recently overtaken by the UK. Tax
complexity issues have been treated rather lightly, accused of overconcentration
on enforcement oriented approach (p.881), and portrayed as a sub-topic of
compliance management (appendix chapter XII), a chapter borrowed heavily from
international literature, and added almost nothing around the political dynamics on
tax simplification in India. India has yet to find a way to end its protracted
complex tax system, and the tax revenues that are lost as a result.
Despite these few weaknesses, this review should end by re-affirming the overall
strength of the report, which lies in the wealth of well-documented, practical and
theoretical discussions across the range of tax reforms issues.

140

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