While the transformation from age-old archaic practices is inevitable, this change needs to impact the entire process and make assessments more taxpayer-friendly and transparent
When the Robert Zemeckis blockbuster ‘Back to the Future’ hit cinemas in 1985, critical success apart, sceptics and viewers alike were baffled at the idea of autonomous cars and virtual reality. Enter 2019, these concepts seem closer to reality. So, when the Interim FM signalled his government’s intent of making the tax assessment process swifter, stronger, predictable and ‘anonymous’, delivered through a virtual interface, I would not yet discount this ambition in disbelief.
Picture this, the next time you go through a process of e-assessment and instead of interacting with a single officer through the e-filing portal, you now have access to a cross-sectoral and geographically-dispersed team to carry out the assessment, equipped with the domain understanding and nuances of your specific industry to better appreciate the business practices you operate within. Enter the anonymous assessing officer—a radical and path-breaking idea, indeed.
In 2015, the government launched a pilot project on voluntary basis to conduct an email-based assessment in five metros, which was extended to two more in 2016. Taxpayers were given an option to undergo email-based assessment. In 2017, this facility was incorporated into the e-filing portal being used by taxpayers. And finally in 2018, the CBDT, vide Instruction 1/2018 dated February 12, 2018, directed that all cases barring certain exceptions shall be subjected to e-assessments. The Finance Act, 2018, introduced amendments to create a framework and lay down operational guidelines for e-assessments.
While the progress has been good, the procedures have thrown up some challenges that need to be addressed to make this idea work.
Getting the technology right—size and spec: A critical aspect that will determine the success of this idea is the government’s IT infrastructure. Specifically, the ability to handle data traffic (a) in terms of size and (b) in terms of volume would be key. If we peep into the not-so-dated past, government servers have often crashed when they experienced high volumes of data traffic, especially closer to filing deadlines. Given the sensitive nature of the assessment proceedings, the government can ill-afford similar crashes. Therefore, the importance of a robust IT infrastructure cannot be overestimated.
Removing legal loops: From a legal perspective, a valid service of notice is a critical prerequisite to constitute a valid assessment proceeding. While necessary amendments have been made in the income-tax law to constitute email communication as a valid mode of service, there are instances where notices are uploaded on the portal but a corresponding email is not sent to the taxpayer. Anomalies like these could lead to litigation and potentially render the proceedings void. Therefore, either the law must be amended to explicitly state that uploading a notice on the online portal constitutes a valid service or IT systems must be streamlined to ensure that emails are automatically sent, without exception, as and when notices get uploaded.
Achieve process perfections: While practice makes perfect, revolutionary ideas do not normally give you a large incubation buffer. Therefore, from a procedural perspective, the government needs an ‘ace’ before the bets are called. For example, the current system does not have any provision for granting adjournments. In case a taxpayer uploads a submission seeking more time, the e-assessment portal neither accepts nor rejects the request, leading to uncertainty for the taxpayer on the next date for filing submissions.
A winning team: While not so much of a challenge at the planning stage, it could be a critical lever to determine failure or success of this initiative. On-boarding the right skills with a credible sector, domain expertise, and ensuring mechanisms to facilitate collaborative working free from bias would be a core area for the government to focus on as it moves into the advanced stages of implementation.
‘You cannot stop an idea whose time has come’. In my view, the time for e-assessments is here, and here to stay. While the transformation from age-old archaic practices is inevitable, this change cannot be at the periphery and needs to impact the entire process and make assessments more taxpayer-friendly and transparent. As long as this focus and commitment stays with both the government and taxpayers, there is little doubt the Indian tax ecosystem will be cruising ahead in its journey to autonomous success.
The author is partner & COO, Tax, KPMG in India