Transparent Taxation: A move to revolutionize Indian Tax Administration

September 1, 2020 11:14 AM

This platform primarily focuses on three major reforms - Faceless Assessments, Faceless Appeals and the Taxpayers’ Charter.

income tax, Transparent Taxation, Indian Tax Administration, Faceless Assessments, Faceless Appeals, Taxpayers’ Charter, Although the concept of Faceless Assessments looks promising, yet, we envisage that both the Tax Department as well as the taxpayer might face some obstacles along the way.

With the intention to augment the Digital India initiative and impart greater transparency / accountability to the taxation division, Hon’ble Prime Minister of India, Shri Narendra Modi, unveiled the “Transparent Taxation-Honouring the Honest” platform on 13 August 2020. This platform primarily focuses on three major reforms – Faceless Assessments, Faceless Appeals and the Taxpayers’ Charter.

Faceless Assessments is an important constituent of the government’s ambitious mission of making tax systems “Seamless, Painless and Faceless”. In contrast to the earlier introduced concept of “E-Assessments”, the updated faceless assessment scheme takes the whole process to an advanced level with the introduction of anonymity i.e. cases will now be selected for scrutiny by central cell called National e-Assessment Centre (NeAC) without disclosing the details of the concerned tax officer / jurisdiction. The shortlisted cases shall be allocated to select assessment units in a random manner who will then be responsible to execute the entire scrutiny process.

The concept of Faceless Assessments is quite promising not only for the government but also for the taxpayer. Given the introduction of contactless administration and dynamic jurisdiction, the faceless assessment scheme is expected to eliminate the hassles of in-person hearings. This should bring in a greater transparency and accuracy.

Further, it is also proposed that the assessment units undertaking the scrutiny assessment shall be divided into three sub-units viz. an assessment unit, a review unit and a verification unit. Each unit shall be headed by a subject matter expert Revenue official who will independently verify his domain related contents of each assessment case. This pooling of resources, knowledge and experience shall bring about some amount of standardisation in the tax positions adopted in the scrutiny orders which, today does not exist. The scheme also proposes an inherent internal control mechanism whereby, select assessment order shall have to undergo a peer review before being issued to the taxpayer.

These aspects coupled with other allied proposals such as communicating reasons of picking case for scrutiny, providing taxpayer the right of review, introduction of hearings through video-conferencing would definitely help instil taxpayers’ trust in fair and impartial assessment proceedings.

Although the concept of Faceless Assessments looks promising, yet, we envisage that both the Tax Department as well as the taxpayer might face some obstacles along the way. At the outset, it shall be a mammoth task for the government to develop a robust platform capable of processing millions of events per second constituting large volume of data.

Other than operational issues, the taxpayer would also face challenges explaining complex transactions only through written submissions or again explaining complex business operations every year to a new set of officers. This would increase the to and fro of submissions since a personal hearing is allowed only in exceptional cases. Further, transitional changes in the implementation of the scheme would also require due attention especially when some assessment proceedings are already in the pipeline before a jurisdictional tax officer. Also, it needs to be clarified that while assessment is just one of the functions executed by a tax officer there are other services that taxpayers need to approach their jurisdictional officers for. For example, getting effect for appeals or obtaining refunds – it is not very clear how these will operate in the new regime. As announced by the Hon’ble Prime Minister, Faceless Appeals will be launched on 25 September 2020 and hence the details of the same are awaited.

Furthermore, apart from the implementation of Faceless Assessments, the Hon’ble Prime Minister also assured taxpayers of fair, courteous and rational behaviour under the Taxpayers’ Charter. Although, taxpayers rights were always part of citizen’s charter, the Budget 2020 gave the charter legal backing by incorporating it in the tax statute. The Taxpayers’ Charter now unveiled outlines the commitment of the Income Tax Department and the rights and duties of the taxpayer. Features like providing a mechanism for appeal, enabling representative of choice, collecting the correct amount of tax have already been part of tax administration. However, unique features like respecting privacy of taxpayer by not being more intrusive than required, holding tax authorities accountable, publishing service delivery standards and reducing the cost of compliance are welcoming features.

The important thing would be how the Government implements the charter so that it does not end up hanging in the corridors of the tax office and becoming just an ornament of intent.

In essence, the transparent taxation and taxpayers’ charter seem to be a well thought move on the part of the government which would revolutionize the entire tax administration. It will help tax department in shedding its autocratic and lackadaisical image and come out as service-centric and solicitous government agency. Now that the government has pressed the reboot button. We wait expectantly for answer to one question – Will it instil enough confidence in the people to hear the Prime Minister’s clarion call to come forward and pay taxes honestly?

(By Rohinton Sidhwa, Partner, Deloitte India, with Shovik Kanodia, Senior Manager with Deloitte Haskins and Sells LLP)

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