By Amit Singhania
At the heart of an efficient tax system sits clear and sound tax compliance. The ease with which a taxpayer can comply with a nation’s tax requirements is directly proportional to the increase in collection of tax revenues and inversely proportional to issues of tax avoidance, tax controversies and litigation, all of which choke the tax administration and collection machinery rendering it inefficient and otiose.
In the last decade, the government has implemented significant steps for formalisation of the Indian economy through rapid adoption of technology and strong policy initiative of e-administration and governance through introduction of faceless assessments and appeals on its newly established web portal.
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The government’s objective to use technology as a tool for transitioning India into a tax-compliant society and offering better taxpayer services is evidenced in the streamlining of tax compliance processes, single-day issuance of basic tax registrations such as PAN for individuals holding Aadhaar, simplification of tax forms and processes year on year, along with the release of ITR Forms and utilities much ahead of the prescribed due dates to facilitate maximum compliance and minimum avoidance, reduced timeframes for processing of tax forms, income tax returns, and issuance of consequent refunds.
With the advancement of technology and economic transactions moving significantly to digital modes, the tax department, keeping pace, has adopted integrated data warehousing and business intelligence platforms such as ‘Project Insight’. This has boosted the tax department’s ability to go after non-filer’s and defaulters. Project Insight operationalises two fairly new centres, namely—(a) Income Tax Transaction Analysis Centre (INTRAC), which leverages data analytics in tax administration and performs tasks related to data integration, data processing, data quality monitoring, data warehousing, master data management, data analytics, web/text mining, alert generation, compliance management, enterprise reporting and research support, and (b) Compliance Management Centralized Processing Centre (CMCPC), which uses campaign management approach (consisting of emails, SMS, reminders, outbound calls, letters) to support voluntary compliance and resolution of compliance issues. The tax department has also launched a dedicated compliance portal to capture response on compliance issues in a structured manner for effective compliance monitoring and evaluation.
As such, tax compliance is not only becoming more accessible but inescapable through the use of such technological tools. That said, the adoption of technology is not merely the harbinger of joy to taxpayers and tax professionals. The adoption of the new web portal and compliance systems by the tax department brought with itself its own teething problems, some of which are still baffling taxpayers and professionals alike after two years of its implementation.
This has resulted in anomalies while undertaking and managing taxpayer compliances, resulting in disallowance of loss set-offs and carry forward on account of erroneous data being relied on by the tax department, failure issues in filing of statutory tax forms on the web portal due to mis-match of PAN and contemporaneous data of taxpayer updated on the web portal, to name a few.
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Recently, certain compliances including filing of Form 10F were ordered to be mandatorily made online. Form 10F, amongst other documents such as tax residency certificate, is typically required by Indian residents making payments to non-residents for affording tax treaty benefits to them. Hitherto, foreign companies not having a PAN registration could furnish a physical copy of such form to satisfy the Indian payers. However, making the filing mandatorily online, created practical difficulties for non-residents, who were otherwise not required to obtain a PAN registration in India. Such non-residents now had to obtain a PAN registration for the foreign company, another PAN registration and digital signature certificate for its authorised signatories, creating accounts for both such PANs on the web portal, registering the authorised signatory on the company’s portal, etc., to be able to file a single paged form. Thankfully, seeing the multitude of requests from non-residents in this regard, relaxation was granted to non-resident taxpayers from mandatory online filing till March 31, 2023.
As such, while the intention is right, the effort of the government should be in the direction of implementing new tax compliances only after testing the compliance journey for the taxpayer and perhaps in a phased manner. This would bolster compliance rates and facilitate compliance management for taxpayers, truly aligning the with goal of transitioning India into a tax compliant society.
The writer is partner, Shardul Amarchand Mangaldas & Co. Views are personal
Co-authored with Suyash Sinha, principal associate, Shardul Amarchand Mangaldas & Co