One of the greatest expectations with regard to any new invention or
technology is the belief that the world is waiting for it with open
arms and an eager welcome. The reality is often the exact contrary.
There are hardly any new ideas, art or solutions that were given an
immediate and enthusiastic reception when they were first introduced.
This is true of the incandescent bulb Edison invented or telephone by
Alexander Graham Bell or the introduction of demat trading in Indian
capital market.
They
all began with a sense of euphoria among a few who introduced it,
accompanied by a buildup of media expectation followed by
disappointment that the concept has not caught on like wild fire. It
took some time for the import of the idea to percolate down, from the
few early adapters to the public at large, through a gradual process of
churning among a whole host of people and processes.
The same
is true for Tax Information Network (TIN) that has been established by
NSDL on behalf of Income Tax Department. The core of TIN is creation of
a consolidated tax ledger for each taxpayer giving the complete details
of tax deducted (withholding tax) on his behalf by all deductors
(entity withholding tax) and the tax deposited by him directly with the
banks.
This consolidated tax ledger is expected to help the
tax department to ensure that the tax credit given to the taxpayer is
indeed against funds received into the government coffers.
This
also aids the taxpayer to verify, well in advance, whether the
deductors and the banks have done their jobs properly to reflect a
complete view of his tax credits in the tax ledger. Such a
comprehensive tax statement can remove the need for the taxpayers to
collect Form 16s (Certificates giving details of tax withheld from the
entity withholding the tax) from all the deductors who have deducted
tax for getting credit of all the TDS.
TIN was inaugurated in
January 2004. First challenge was to put in place the systems,
procedure and infrastructure for the 13000 odd tax collecting bank
branches for uploading to the TIN central system, details of the tax
challans (for tax payment instrument identification) on a daily basis.
The
second challenge was to establish a nationwide network of facilitation
centres to interface with the taxpayers and also an online facility for
the deductors to furnish their returns directly. (This infrastructure
had to take care of the difference in ICT infrastructure of the large
and small companies across the country)
The central system was
also to be equipped to match the TDS returns with the challan details
(details of tax payment instruments) so that the tax ledgers giving the
details of all incomes and tax deducted could be created.
Establishment
of infrastructure is the easier part. But ensuring high degree of
compliance and data quality is an uphill task of enablement, education,
feedback and enforcement. It needs conviction, patience and discipline.
It also requires ability to keep the big picture in mind and taking one
incremental step at a time to reach the ultimate goal. It is easy to
loose heart or get impatient on the way and run after quick-fix
solutions.
Like any other project that attempts significant
transformation, TIN is also confronted by such woes. There were many
who were ready to condemn this. This crowd consisted of many varieties.
Some of them were taxpayers and taxmen getting scared of the increased
transparency and the resulting ‘loss of flexibility’ in tax compliance
and tax enforcement. Some were those who felt that they lost the lime
light in this new initiative. There was turf war and professional
jealousies. Then there were those who were simply impatient and felt
disappointed that the change did not materialize like the
transformation of Cinderella and they were too eager to keep tinkering
which was sometimes counterproductive.
The encouraging thing
is that in spite of these, the project is going forward. This was
possible only on account of the diligent and patient efforts by some of
the officers of the department. The Directorate of System being the
nodal agency for this project naturally took the lead. Many officers of
the department from the field also played active role. Office of the
Principal Chief Controller of Accounts and the Reserve Bank were some
of the other agencies who extended helping hand.
One of the most
significant initiatives by the department in this direction was the
efforts it took to garner support from the taxpayers in improving the
compliance and data quality.
TIN provides an online facility
for the taxpayers to view a comprehensive view of their tax credits
over the net. But many taxpayers were unaware of this and many did not
feel it important to refer to this as they continued to get their
credit on the basis of the certificate provided by the deductor.
The
department decided to address this issue in a taxpayer friendly
fashion. It commenced forwarding of the tax credit statement by email
and letters for the current and past year directly to the taxpayer with
explanation on what to do to ensure that all the eligible credits have
been accounted.
This has helped to educate the taxpayers that in
future they may have little difficulty in getting tax credit if they
ensure that their tax credit statement is correct and complete.
Similarly
the reminder letters that TIN forwards to the deductors have helped
those forgetful souls about their responsibility under the law to
deposit tax deducted and file returns. The central system of TIN where
all the returns were consolidated made it easier for the Department to
track the defaulters and take appropriate action.
Inconsistency
letters sent by TIN to the deductors is helping the deductors to
identify their mistakes and to take necessary precautions to prevent
such errors in future. It also reminded those deductors who paid TDS
but did not file returns and those who filed returns but did not
deposit tax. This information is also available online helping the
deductors to rectify their errors.
This is a total cultural
change for the department. For the first time, instead of sending
notices, the department is communicating with the taxpayer feedback on
information related to tax credit it has with respect to each taxpayer.
Advising him to verify whether it is correct and rectify errors, if
any, much before the department look at these details with the eye of
an enforcer and start taking actions.
These movements towards
transparency and more automated enforcement have helped the tax
collection effort of the government. As per newspaper reports, in the
last three years (Till 2008) the direct tax collection grew by more
than 30% per year overtaking the indirect tax collection first time in
history. The contribution of these efforts in strengthening the tax
administration was acknowledged in a public function in August 2008 by
Shri C Chidambaram who was the Finance Minister of India.
I am
sure that co-coordinated efforts from various stakeholders can help to
provide a tax administration system that is efficient, effective and
provides high standards of service to taxpayers, at the same time,
collects the revenues required by law to fund necessary public
services.