The Canadian Parvasi- Issue 62

The International News Weekly Edit
06
September 21, 2018 | Toronto
The
Be A Service Provider
Income tax department has to stop being judge, jury and executioner
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Lessons Unlearnt
Raghuram Rajan’s explanations for
NPA crisis provide a template for
banking reforms
Raghuram Rajan, governor of RBI between
2013 and 2016, has triggered a political debate between
Congress and BJP while communicating
his views on India’s bad loan, or NPA, problem
to a parliamentary committee. This is not surprising
as the NPA issue is sensational grist for
election season. It encompasses crony capitalism,
fraud, fugitives, all of which are financially
underwritten by taxpayers. The gist of Rajan’s
explanation covers familiar territory. Seeds of
the NPA problem were planted between 2006 and
2008, tail end of the boom years, and NDA’s introduction
of insolvency code is a big step in changing
lender-borrower dynamics for the better.
Rajan’s explanation spans fundamental
flaws in the banking architecture, particularly
the lack of incentives to bank heads to be transparent
about NPAs, and governance challenges
in public sector banks. These problems remain
unresolved in important ways. According to
Rajan, some of NDA’s pet lending schemes such
as Mudra may be sources of another bad loan
crisis. From the standpoint of the economy, the
essence of Rajan’s views is that India may not
have learnt some importantlessons from the last
banking crisis.
The health of a banking system depends crucially
on the incentives bankers have in being
mindful of risks and transparent about the true
state of affairs. Governance-related tinkering
in public sector banks after the NPA problem
exploded have yet to bring about meaningful
change in incentive structures. The fear of investigative
agencies and need to follow government’s
credit directions at the cost of prudence
remain unchanged. While recapitalisation of
public sector banks cannot be delayed any further,
there isn’t a commensurate sense of urgency
in improving their governance. To that
extent, systemic flaws of the last decade remain.
The insolvency code is the single most important
reform of the Narendra Modi government,
as it has for the first time brought a sense
of balance between banks and large borrowers.
But if this is to truly transform the borrowing
landscape, it is important that all stakeholders,
including judiciary, enhance capacity. Finally,
government should begin the process of putting
a credible institutional structure as an intermediary
between itself and banks. Given the easy
option of using tax money to offset banking problems,
the biggest risk to the financial system remains
state control of banks. Unless that is addressed
in a meaningful way, banking crises are
fated to recur and the taxpayer will be endlessly
drained. TNN
R Prasad
The President of India,
while welcoming the
71st batch of the Indian
Revenue Service, stated
that income tax law has
to be made simple and the
income tax department
should be a service provider.
To bring this about, the
first and foremost aspect is
that officers’ attitude has
to change. They cannot assume
that every taxpayer
is a tax cheat. In the department,
officers are told
that when two views are
possible, err for the benefit
of revenue. These ideas
need to change for which
training modules in the
National Academy of Direct
Taxes (NADT) have to
be redesigned.
Harassment of taxpayers
is also caused by fixing
collection targets for individual
officers. When 90%
of collection comes from
advance tax and TDS, 5%
from self-assessment tax
and only 5% from postassessment
collections,
there is no necessity to
allot collection targets to
individual officers. The US
did away with individual
collection in 1959, but tax
collection has not stopped.
If collection targets
are fixed, officers make
excessive assessments
and collect taxes out of illegal
demands. CBDT has
further aggravated the
situation by stating that if
20% of the demand is paid,
the balance can be stayed
till first appeal. There are
cases where such excessive
demands are raised
that taxpayers are not able
to pay 20% of the demand.
This leads to harassment
in the form of attachment
of bank accounts and properties.
When the taxpayer
wins in appeal, the files in
respect of the attachments
are misplaced and taxpayers
suffer more harassment.
Even in appeals before
the commissioner
(appeals), the supervisor
officers impress on the
commissioner that the appeal
should be dismissed
so that the department
can recover the illegal
demand. Supervisory officers
are able to enforce
their view as they give
threats of vigilance and
bad reports.
Another area where
taxpayers suffer is the
credit of taxes paid, rectification
orders and giving
effect to appellate orders.
This is happening primarily
because of shortage of
25,000 staff members in the
department. Another reason
is that we have transited
from physical records
to electronic records and
as the physical records
are lost, giving credit for
taxes, rectification and so
on becomes difficult.
The problem of service
to the taxpayers is not going
to be solved by public
relations measures. There
is a public perception that
the income tax department
(ITD) is an out of
control agency systematically
abusing taxpayers.
Ineffective enforcement is
unfair to honest taxpayers.
Service to taxpayers is
necessary as it affects the
lives of millions.
Effective call centres
can be set up by outsourcing.
ITD cannot be an
agency for instilling fear
among taxpayers, which
can be used as a political
tool. ITD should not be
judge, jury and executioner.
Extracting unfair taxes
ruins lives, families and
businesses.
ITD should design a
taxpayer bill of rights in
consultation with stakeholders.
Abuses occur
because the officers try
to inflate their enforcement
statistics. In order
to reduce cost of compliance
the number of filings
from taxpayers must be
reduced. Implementation
of studies carried out by
CBDT is also needed.
There should be more
interaction between officials,
tax practitioners
and business groups. This
would increase the credibility
of officers with
taxpayers. In India, as in
the US, collection should
not be a measure of individuals’
performance.
The three important measurements
should be – (1)
customer satisfaction (2)
the business result for ITD
(3) employee satisfaction
and its relationship with
productivity and business
measures.
Many tax rules are
contrary to common sense
and without any idea of
ground realities. The cost
of compliance for small
businesses needs to be
decreased. Electronic filing
of returns has to be
encouraged. The accrual
method of accounting
needs to be prescribed
over a particular turnover.
Services need to be
improved by commitment
and not by decrees.
In order to improve
services, reorganisation
is necessary. In the good
old days, there were no
computers or net and
communication was difficult.
Therefore the work
was done through small
geographical units supervised
by layers of management.
The new design has to
be consumer based. The
work has to be done by
the functional units which
exist in India such as –
salary circle, corporate
charges, business circles
and exempted units. In the
ITD, appeals and criminal
investigation need to be
strengthened. Reorganisation
has to be such that
the organisations develop
powerful values and behaviour,
have respect for
the individual and insulate
officials from political
influence.
Another area which
needs improvement is
computerisation. The
system has to be a robust
one with large storage and
high speed. Proper bandwidth
for this purpose is
necessary. As far as possible
the use of paper should
be reduced. Call centres
should be able to do the
work online. A period of
three months should be
fixed for the processing of
all returns from the date of
receipt.
Selection of cases for
tax scrutiny should be
based on attacking tax
shelters such as agricultural
income, investment
companies, donations,
penny stocks, foreign tax
shelters, use of foreign
credit cards and tax deductions.
Tax is necessary for civilisation.
Tax is collected
for the people of the country.
We have to treat each
individual well because
without individuals, there
would be no taxes and no
tax department.
The Constitution of India
is a social contract of
the people of India and as
tax flows from the Constitution,
we need an efficient
and just tax system for the
benefit of the individuals
of this country.
Source Credit: This article
was first published in The Times
of India.
The writer is former Chairman,
Central Board of Direct
Taxes (CBDT)
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