With the taxman putting out a request for private sector entities to help analyse the reams of data collected as part of the demonetisation exercise, there is the fear that confidential tax data can now get leaked and be used illegally.
With the taxman putting out a request for private sector entities to help analyse the reams of data collected as part of the demonetisation exercise, there is the fear that confidential tax data can now get leaked and be used illegally. While the government will obviously have to ensure there are no data leaks, it has to be kept in mind that, even today, there are several private sector players who assist the taxman in both analysing and processing tax data such as in the central processing centre in Bangalore. Despite this, the data doesn’t leak for two important reasons. One, just as the taxman who handles data is bound by secrecy rules and a code of conduct, private sector vendors and their employees are bound by confidentiality clauses and the law of the land for breaching this—so, there is as much danger of your tax data being accessed by a rogue taxman as by a rogue independent contractor. Two, the processor does not necessarily know the identity of the person/organisation whose information is being processed, the system is designed in such a manner—what the private party is doing, then, is to run the tax returns submitted through a software that detects anomalies and throws up questions; once replies to these are got, the software analyses these and suggests further follow-up.
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In the demonetisation exercise, the taxman has lots of data—so, for instance, Rs 25,000 crore got deposited in Jan-Dhan accounts, around 1.2 lakh borrowers repaid loans of over Rs 25 lakh each using old notes, Rs 2 lakh of cash was deposited in 60 lakh bank accounts … Normally, it would take years to analyse the data and make sense of it. A common practice used for laundering funds, it appears, was to make use of a company’s cash-in-hand—so, if a firm had Rs 2 crore of cash-in-hand on March 31,2016, up to this amount was deposited in old notes till December 31. What the taxman/vendor will now have to do is to see whether this route has been abused by, say, comparing this with the firm’s books between April 1 and November 8 or whatever the latest period for which data is available. This is where big data, and the private vendors come in. Once the data is made anonymous—the terms of reference say the vendor has to develop ‘security and privacy processes for secure handling of data by third parties’—it will be run through the software, queries will be sent out by a computer, and the results analysed; at no point, will the private firm get to see the data of individuals/firms. The vendor’s job, apart from helping analyse the data, will be to teach the taxman how to use data and create dashboards for senior officials to use and, perhaps, make some of this available to the public as well. Given how important it is to get India’s near-stagnant tax-GDP ratio up, it is critical to use all resources to ensure this and, to the extent this is available in the private sector, it would be foolish not to use this. You only have to see how Nandan Nilekani energised Aadhaar and brought new systems to bear to know how important it is to get the best hands on board.