Tax Collection

Direct Taxes, now the major resource provider to the Central Government, have grown at

an average annual rate of 24 percent in the last five years and have nearly trebled from

Rs.1,32,771 crore in financial year 2004-05 to about Rs.3,78,000 crore in financial year 2009-

10, increasing its share from 4.1 percent to 6.1 percent of the Gross Domestic Product (GDP).

This tremendous growth has been made possible not only due to rationalisation of tax structure

and improvement in tax administration leading to better tax compliance, but also persistent and

unrelenting efforts of employees of the Income Tax department.

Tax Reforms

2. To improve compliance further, tax laws need to be simple, stable and robust; tax rates

should remain moderate; and multiplicity of tax exemptions and deductions should be gradually

phased out in order to widen and deepen the tax base. Tax administration needs to be further

toned up by appropriate use of technology on the one hand, and improving professional

competence and responsiveness of the employees on the other.

3. A major tax reform initiative has already been announced in the proposed ‘Direct Taxes

Code 2009’ to simplify, rationalize and consolidate the laws and procedure, relating to direct

taxes. Its draft is under revision, taking into consideration the areas of concern expressed by

various stakeholders, and the discussion paper will be shortly in the public domain before

introduction in Parliament in the forthcoming monsoon session. It will indeed be legislation for

the 21st century, which will witness the emergence of an economically strong and vibrant India. I

anticipate that the new code will usher in major changes in procedures and practices of Direct

Tax. The Department, therefore, needs to draw a roadmap for administratively meeting the

challenges and the changes that will be introduced by the new Code. The Human Resource

Directorate of the Department should draw up plans for training in cooperation with tax training

institutes for capacity building for implementation of the Direct Tax Code. The transition from

existing law to DTC would require completion of delegated legislation in a time bound manner.

CBDT should ensure smooth transition by planning the activities schedule well in advance.

International Taxation

4. Growth in international trade and commerce driven by globalisation is throwing up new and

complex challenges. Globalization offers a global market for product and services but at the same

time it also poses challenges. The recent financial crisis has shown how an economic difficulty

of one country can get exported to other countries. Similarly, the development of tax shelter

products and use of tax havens is another challenge, which emanates from globalization. In our

response to global challenges we have set up two Income Tax Overseas Units (ITOUs) within


Indian Missions in Singapore and Mauritius to facilitate exchange of information. Eight more

such units in USA, UK, Netherlands, Japan, Cyprus, Germany, France and UAE are also being

created on similar lines. I am hopeful that these measures would result in seamless flow of tax

related information from foreign tax jurisdictions and would strengthen our fight against menace

of tax evasion using cross border transactions.

Taxpayer Services

5. The department needs to improve its infrastructure to match global standards of delivery

of taxpayer services. The effective roll out of Sevottam and Aayakar Sewa Kendra (ASK)

would require adequate infrastructure. It is necessary to make the infrastructure state-of-the art to

improve the working environment and to make a visit to the tax office a pleasant experience.

Processing of tax returns, now done on the National Computer Network, has to be made more

efficient. Towards this, two more Centralized Processing Centres (CPCs) at Pune and Manesar

should be set up expeditiously. Efforts should be made to further popularise and increase

electronic filing of tax returns and electronic payment of taxes to reduce paper-work and make

taxpayer services environmentally friendly. The scope of Large Taxpayer Units (LTUs),

presently operational in four metropolitan cities, needs to be expanded for deepening of tax base

as well as for centralized services to large taxpayers.

6. While taxpayer services have improved there are still large numbers of taxpayer

grievances, including grievances relating to tax refunds and credit of TDS, which need to be

attended on urgent basis. At the systemic level CBDT should ensure that Directorate of Systems

take immediate steps to streamline the issue of credit of TDS. Apart from systemic changes, the

grievance redressal mechanism including Ombudsman need to be integrated and streamlined. A

holistic approach needs to be developed to cater to the rising expectations of taxpayers. The

CBDT should immediately come up with a comprehensive and net-based grievance redressal

mechanism in line with the best global practices.

7. A number of services offered by the department have become technology driven. It may

not be possible to deliver the services of desired quality in the existing structure of tax

administration. CBDT may come out with a new structure, which leads to faster adoption of

technology and innovation. The CBDT may, therefore, consider hiving off its technology driven

taxpayer services to a Special Purpose Vehicle (SPV), which can better deliver such services in

the public-private-partnership mode. This will lead to innovation in delivery of services to

taxpayers and also involvement of public in delivering the services.

Strategies for Meeting Tax Collection Target

8. For the current financial year, the direct tax collection target has been fixed in the Budget

Estimates at Rs.4,30,000 crore at a growth of 13.7 percent over the actual collection last year.

We have deliberately called this conference in the beginning of the financial year to deliberate

strategies and draw action plan to achieve this target. Apart from concentrating on big cities and

towns, Department should also look to smaller towns and cities for widening of tax base. The


smaller towns and centres have emerged as centres of growth due to inclusive growth agenda of

Government. Department may also develop special strategies to monitor TDS compliance at the

District level, state level and at Central level.

9. The GDP is poised to grow at 8.5 percent during 2010-11. Sectors of the economy

performing well should be monitored for tax compliance and we should get our due taxes. The

department should also make attempts to widen and deepen the tax-base further. It should

improve utilization of information relating to high value transactions available through Annual

Information Returns (AIR), Central Information Branches (CIB) and other sources. Using

multisource data, Department should refine risk profiling of taxpayers and assessments and

investigations should be carried out accordingly. Using this intelligence data department should

develop credible deterrence for taxpayers, who are habitual tax evaders.

Strengthening Manpower and Improving Employee Welfare

10. Skills of the personnel working in the department need constant up gradation in view of

changing tax regulations, technology and global economic environment. Though I find that the

CBDT has taken some steps in this direction through Knowledge Management by yearly

publication of the book titled “Let us Share”, containing the best orders and practices, yet

further steps need to be expeditiously taken in its training and skill up gradation programmes

adopting the best global practices. I understand that CBDT is already providing exposure to

probationers at NADT about international practices through international attachments. This has

to be taken forward by suitably designing mid-career training programmes for officers at regular

intervals. This will equip officers to face challenges of dealing with complex international

transactions and menace of tax avoidance schemes using tax havens and low tax jurisdictions.

This will also help us in getting our due share of taxes especially from cross border transactions.

I am happy to announce that Advanced Mid-Career Training Programme (AMCTP) for

IRS officers would be started during the current year.

11. A satisfied work force is the backbone and strength of an organization. We have modified

the transfer policy for the Indian Revenue Service (IRS) officers to improve satisfaction levels

and minimise unwarranted service litigation with our own employees. The Standing Committee

on Finance, in its report for 2009-10, has expressed concern about shortages of manpower in the

Department. This needs to be addressed urgently, especially in the face of the exponentially

increasing workload, and the challenges of maximising revenue generation along with efficient

taxpayer service. I am told that cadre restructuring of CBDT is pending for quite some time,

which has adversely affected the implementation of core areas of work in the Income Tax

department. The tax laws can be implemented effectively by aligning the tax administration with

the intent of tax policy. If there is a mismatch, then it may be difficult to implement a tax policy,

however good it may be. CBDT should ensure that deployment of human resources is in

consonance with requirement of the tax laws and this should be ensured by completing the timely

exercise of cadre restructuring and by holding regular departmental promotional committee

(DPC) as per the DoPT calendar. In the long term, we should aim for Human Resource policy,


which is conducive for specialisation, promotes administrative innovation, provides equal

opportunity and keeps employees in high state of motivation.

12. In the last year’s conference, I had emphasised the need for expediting vigilance matters.

I find that though there is improvement, the progress is not at the desired levels. More focussed

approach with proper adherence to prescribed time-lines is needed to expedite vigilance matters.

I want to see that no charge sheets are filed against our own employees at the last day of

retirement after more than 30 years of service to Government. We should ensure that guilty is

punished but at the same time ensuring that those who have performed their duties and victims of

frivolous complaints should be adequately protected. Department need to focus on preventive

vigilance and adopt a strategy for zero tolerance for corruption. CBDT should set up a

committee to examine the vigilance practices and procedures in few select countries. The

experience of other countries can be used to streamline and strengthen the vigilance

administration in Income Tax department.

Alternate Dispute Resolution Mechanism

13. The rising litigation with the taxpayers and the quantum of revenue locked in appeals is a

matter of serious concern. The strengthening of Settlement Commission, setting up Dispute

Resolution Panel (DRP) may address the litigation issues with the taxpayers to some extent. I am

told that under mutual agreement procedure (MAP) negotiations under Indo-USA DTAA a tax

demand of Rs.800 crore in 48 cases has been confirmed. This is a good development and taxpayers

should be encouraged to invoke MAP, which has emerged as a preferred alternate dispute

resolution mechanism. In spite of these efforts, we need to develop more strategies to reduce the

litigation with the taxpayers. I would like CBDT to come out with a comprehensive proposal to

address the issue of unwanted litigation with taxpayers and also to realise locked up revenue in


Income Tax Welfare Fund

14. Before I close, I am happy to announce the operationalisation of the Income Tax

Welfare Fund, which was pending since 1998. The Fund has a corpus of Rs.100 crore kept in

interest-bearing deposit. The interest earned annually on this deposit, and other annual accruals to

the Fund, will be available for welfare activities of employees of the Income Tax department. I

am sure that CBDT will come out with innovative welfare measures, which will further motivate

employees of the Department to excel in their area of work.
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About Nitin Aggarwal

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