THE success of a modern, progressive tax system hinges on two efficient wheels– Tax legislation with moderate tax rates and a dynamic tax administration. No fiscal reform in any tax jurisdiction can yield optimal results unless both the wheels are ‘greased' simultaneously to sprint together smoothly! In the recent years, India has also undertaken seminal reforms on direct as well as indirect tax fronts. To talk about the direct tax-related changes, TIOL News Bureau spoke to the Principal CIT, Mr Pratap Singh, whose book titled "Reforms in Tax Administration: An Indian Experience" was recently released at TIOL Tax Congress 2023.

Q. Sir, please briefly tell us about your book and how different it is from others in the market?

Ans. This book is about transformational journey of the Income Tax Department in the last three decades, as to how from a totally physical mode of working, it has become fully automated with minimal human intervention. The Indian tax System is regarded as one of the most modern tax systems in the world. Today's India is an important voice at Global Tax for a like OECD, G-20, UN, FATF etc. and has richly been contributing to the emerging international tax architecture through pillar one and pillar two solutions. Full credit goes to the progressive tax policies of the Government and efforts being put in by the countless officers and others in the department.

My book contains an overview of history of taxation, ancient fiscal wisdom from the times of Manu, Chanakya - Arthasashtra, Mauryan period, Kalidas and Tulasidas to Adam Smith ( 1776 to 1860) when modern tax system was introduced by James Wilson in the British Period and more particularly after Independence. It contains details of various committees and commissions set up for tax reforms like TRC in 1990 and TARC in 2013, important amendments made in tax policies and laws over last 30 years and its impact on tax collections, tax-GDP ratio, the tax base, overall economy and development of the country. The book has detailed analysis of time series data of GDP and taxes as also of tax -GDP ratio over the period 1981-2017. This book is result of extensive research work done in the world of taxation over five years ( 2014-19) especially on tax administration. Some of the ideas in this book have been adopted from my doctoral research work entitled as "Reforms in Direct Tax Administration and Tax Performance in India " completed in 2019.

Q.2: What are the important highlights of the rapidly changing tax administration in your book?

Ans. The book sieves through relationship between tax to GDP growth by doing elasticity analysis and the trend analysis of tax collections over the period of time. Since major tax reforms were undertaken in the year 1991, it is empirically established that there was growth factor of 1.32 in taxes for every percentage increase in GDP growth post-1991. It was also found that impact of these tax and economic reforms took sometime and their impact was visible only after 1997, when there was upswing in the growth of taxes as also the GDP. The book examines impact of 2008 global financial crisis on tax collections and GDP growth and establishes that there was a structural break in the year 2008 and thereafter the growth in post-2008 was 4.12% lesser as compared to the period 2001-2008. The book also compares tax-GDP ratio of major economies, OECD Countries and BRICS Countries and examines as to what should have been the tax-GDP ratio of India. Apart from this, the book also discusses the compliance level in India, cost of compliance, role and functions of tax administration and what should be done to improve compliance. The book also discusses latest model in tax administration TADAT and various legislations passed by the Government to check tax evasion, which includes Black Money Act, Benami Property Act and IDS. The book also examines the impact of Demonetization 2016, and IDS-1 & 2 on economy and taxation and as to how it improved tax base and formalization and also cleaning up of economy.

Q.3. You stated that some analysis has been done about initiatives to curb black money like Demonetization 2016. What are the key learnings?

Ans. This is a very sensitive issue and therefore I would like to put a disclaimer and emphasize that my views on this issue are personal and does not indicate Govt's or Department's position. Having said that, data shows that Demonetization has had tremendous positive impact on expanding the tax base by over 2 crores taxpayers, increase in tax collections growth by over 4% year on year and gave impetus to formalization and digitalization of economy, which will yield rich dividends in the future. Data also indicates that there had been some reduction in counterfeit currency and terror funding as also in Naxalite activities during that period. Data sets also indicate marginal decline in GDP growth by about 1%, which may or may not be fully attributable to Demonetization and marginal decline in informal sector and job loss which though improved within a few months. Overall Demonetization helped in cleaning up the economy and nudged it towards greater formalization and digitalization which is quite clear from the data for later years i.e. 2017-20.

Q. 4: Your book emphasizes that Tax Department has really transformed over a period of time. However, there are still ‘bugs' being faced by the taxpayers. How do you address the same.

Ans. There has been a lot of improvement in compliance after digitalization and computerization of the tax processes, which is reflected in tax collection figures as also in growth of payment of taxes and overall tax base. Now, we can do 360-degree profiling of taxpayers, as to what are they doing, what are their incomes from different sources and where are they spending or investing, in non-intrusive ways, without visiting a tax payer. In fact, after computerization, compliance costs at the end of tax payers have also substantially reduced, which helped in better compliance. The speed of the department in processing tax payments and tax returns has increased considerably. Presently, tax refunds are being issued within 16 days which we further intend to reduce to 10 days. Today, one can file tax returns or pay taxes sitting at home at any time 24X7 and can also see the progress in their proceedings online. Therefore, technology has provided the much-needed resilience to the taxpayers. Now, many tax returns are processed the same day once it is filed and tax refund is also issued to the assessee within a few days. Therefore, technology has made life easy both for the tax payers and also for the tax department.

Coming to the problems, technology throws its own problems which need to be managed and user has to get used to it. The biggest problem is of public awareness and access. Further one has to have an internet connection, a computer and a smart phone to access the above facilities. In due course, the connectivity will get better with 5G networking and mobile telephony will also be available in almost every corner of the country, which will provide better connectivity and access. At the end of the assessee, they may need a bit of help in some matters, like filing of tax returns or claiming tax credit which we provide with the help of technology. Over all, things are working well and taxpayers at large are satisfied.

Q.5. What are the significant steps taken by the CBDT to ease compliance burden and to promote ease of doing business.

Ans. The Income Tax Department under dynamic leadership of CBDT has taken several steps to streamline the Tax system, to promote growth and to reduce the compliance burden with a view to promote ease of doing business. This includes faceless assessment and appeal system, facility of pre-filled tax returns, creation of 100 posts of Joint Commissioner (appeals) to reduce litigation, improved 26AS and AIS (Annual Information System), facility of filing updated returns and e-verification as also demand facilitation and management to reduce infructuous tax arrears. These are path breaking initiatives to simplify the tax system and to promote voluntary compliance. Besides various reliefs have been granted in the recent budget by Hon'ble FM, like reduction in tax rates for startups and new corporate entities, increasing the limits of tax free leave encashment to Rs. 25 lakhs, bringing new savings scheme to women and elderly, relief to start ups and cooperatives, reducing compliance burden and decriminalizing various violations.

Q. 6. What is your future outlook on the Indian economy and also for tax revenue? Any policy recommendations are contained in your book?

Ans. The taxes are doing exceedingly well in the current year and the growth in net direct taxes is over 21%. Even in indirect taxes like GST etc. growth is over 11%. The economy is also doing well and is expected to grow over 6.8%.International rating agencies have increased India's GDP growth forecast and also the credit rating. Even the tax base has been increasing at a swift pace.In the current year alone, over 56 lakhs new tax returns have been filed. There is broad agreement among experts that this year's tax collections will surpass the budget estimates by a fair margin.

Coming to the recommendation, the book prescribes that the taxpayers be treated with respect and a substantial budget be earmarked for the taxpayer services. It talks about reducing compliance costs, reducing tax litigations and promote specializations among tax officers. It also talks about strengthening judicial and prosecution mechanism of the department, following global best practices.