Finance minister P. Chidambaram has signalled an overhaul of India’s direct tax administration that will see a friendlier tax regime to encourage more voluntary compliance.
“The department will increasingly focus on voluntary compliance, seeing that tax collections have been buoyant. It will gear up to being customer-oriented and create the least inconvenience or hardship to taxpayers,” Chidambaram promised.
The finance ministry announced the setting up of a new directorate of human resources to help tax department personnel track their performance and upgrade skills through training.
“Direct taxes are taxes of the future,” said Chidambaram at a New Year’s Day press conference. “Personal and corporate income tax are developing as a major source of revenue in India. The tax administration must, therefore, be reorganized to become modern, effective, well-organized and geared towards encouraging compliance.”
The proposed changes come as direct tax collections, both from individuals and corporate, look set to cross Rs3 trillion in the year ending March. From April to December, corporate income tax collections grew 40%, and personal income tax by more than 50%.
According to the finance minister, direct tax collections at the end of December have for the first time exceeded indirect tax receipts. Chidambaram said the expectation is that in a year or two, the Central Board of Direct Taxes will be “transformed from the point of view of taxpayers.”
Nikhil Bhatia, a partner with the consultancy firm KPMG in Mumbai, said the effort to treat taxpayers as customers is a good idea. “You see, the tax administration has huge powers,” he said. “Behavioural changes, such as getting them to respect people’s time is one good thing, but it must go hand in hand with creating accountability of officials. Doing both, to my mind, will be the real challenge.”
CBDT chairman R. Prasad said since taxpayers had demonstrated compliance, apparent in the spurt in revenues, it was time for the tax administration to become friendlier.
Services, such as electronic filing and online payments of returns, as well as an assurance that refund claims will be processed quickly, have already encouraged people to voluntarily comply, according to the finance ministry. Some 3.5 million tax refunds were issued during April-December 2007 compared with 2.7 million in the year-ago period.
Similarly, in 2005-06, the year electronic returns were introduced, there were “minuscule” electronic returns filed, the minister said. That has gone up to 1.34 million in April-December, according to the finance ministry.