• Breaking News


    Jun 9, 2010




    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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