New Delhi: Rabender Singh Mathoda took over as chairman of the Central Board of Direct Taxes (CBDT) on 1 May at a time of two seemingly contradictory developments: record growth in direct tax collections and short tenures for the organization’s chief. Mathoda, an engineer from the Indian Institute of Technology, Kharagpur, with a passion for photography and trekking, talked of the contradictions and CBDT’s plans to gear up for the future in his first interview after becoming chief of CBDT. Edited excerpts:
There has been unprecedented growth in revenue collection on the direct taxes front. What accounts for this growth? Will it be possible to sustain the high growth rate, and for how long?
Gearing up : Chairman of Central Board of Direct Taxes R.S. Mathoda says the board is taking several new initiatives, such as business process re-engineering, change management, computerization and setting up a human resources management directorate. (Photo: Ramesh Pathania/Mint)
Revenue comes in because of the growth of the economy. It leads to more income generation and when there is more income generation there is obviously going to be more taxes. Certain activities may not lead to increase in direct income taxes but instead lead to creation of some other kind of income, which can be tapped under a different tax. Secondly, there has been an improvement in the administration of tax laws in the country. Thirdly, there is better compliance on the part of the taxpayer.
The economic assumptions underlying your projections for the current fiscal year have changed dramatically from the time the Union Budget was presented. How do you think this will play out?
If you look at the collections in the last few years, there is a sustained increase. It was 20% in 2002-03, 26.4% in 2003-04, 26.34% in 2004-05, 24.43% in 2005-06, 39.33% in 2006-07 and 35.54% in 2007-08. So, even if it reduces, it won’t fall so much. I believe in the short and medium term our growth will be sustained.
So you don’t believe the economic slowdown will have an impact on tax collections?
I think it will have an impact, but I hope it will be minimal. I intend to tighten the administration. Once our officers start doing better, I think the situation will improve. There are many other initiatives we are taking that will help us in the short and medium term.
Finance minister P. Chidambaram recently remarked that direct taxes are the taxes of the future. How do you see this trend?
In every developed economy, the proportion of direct taxes to indirect taxes goes up to 70-80%. This year, it is about 54% (in India). It is the first time that this has happened. And we are hoping that this increases over time.
What is the status of the proposal to bring in a tax code?
I think the FM (finance minister) did remark that it is ready and will be tabled. I was not part of the preparation; some of my other colleagues were. I think the FM is the best person to answer this query.
A significant part of the recently released Sixth Pay Commission Report revolved around systemic reforms in civil services to meet the demands of a rapidly changing economy and the need to enhance service levels. Seen against this backdrop, what are the important changes carried out by the income-tax department?
The most important thing that is happening is computerization. It is physically not possible to handle all the returns. Where an income-tax officer used to handle 2,000 returns, now he has sometimes even up to 30,000 returns. Alongside, we are also initiating a business process re-engineering; this is based on comments by an outside agency.
Then there is change management—how to change the mindset and thereby maximize the output of the organization. We have also set up a human resources management directorate. Our biggest resource is human capital. The challenge is how to get the best out of them and expose them to the best practices in the world.
What is the status of computerization in the income-tax department? When do you expect the process to be completed?
We have a national network in place. We also have regional data centres all over the country. Now we propose to migrate this data to the central server. We have missed the internal deadline. There are some challenges and we are working to resolve it. We propose to conclude it by the year-end.
Improved services for the taxpayer is one of the areas being emphasized by CBDT. What should the taxpayers expect from the department in the next two-three years?
You can expect early processing. The board (CBDT) wants everything done in four months. It all depends on how fast we can do the computerization. Consequently, the refunds, too, would go through quicker. The flip side of improving the information system is that we will be able to do a better scrutiny (of tax returns) and, therefore, people will be required to report better compliance.
Informally, some of your colleagues in the indirect tax division have let out the fact that they have begun to tap your database to ensure better tax compliance on their side. Can you shed some light on this?
We do not have a formal set-up in place at the moment. It is case-oriented. We already have large taxpayer units in three places (Mumbai, Bangalore, Chennai) in the country. And we are looking to replicate one in Delhi by the end of this month or as soon as we possibly can. Now, the information sharing is need-based, but it will increase in the future.
The department is battling with acute manpower shortages and infrastructural bottlenecks. How does CBDT plan to tackle these problem areas?
We were sanctioned 7,051 additional employees in November 2006. Tax assistants, inspectors have been recruited. It takes a long time, because you have to run a background check on each employee. In addition, we are outsourcing a lot of our non-core functions. For example, take data entry. Similarly, we are contemplating outsourcing our record management too. So, we realize our inadequacies and are working towards resolving them.
Issues relating to international taxation are fast growing in importance. Has CBDT planned structural and related changes to deal with the issue?
At one level you can change the law; the new income-tax code, once in place, should tackle this issue. Our own understanding of these problems will improve with experience. We are also learning. In addition, we are devoting more manpower to these tasks and also training them to do the job better; we are also developing domain knowledge, initiating mid-career training programmes to emphasize on these aspects.
Are you also looking specifically at the issue of transfer pricing?
Yes. It is not only an international issue, but also one with domestic ramifications. You look at your tax-exempt areas such as Badi in Himachal Pradesh. It is very important to see how much work is done by a company with one unit in these areas and another elsewhere in the country. This is because your activity there has a tax break, but one here does not. So, it is important to understand how much work is done there. We are developing expertise on this and have raised very good demand in some cases. I personally remember in one instance where we raised a demand of Rs26 crore and collected Rs18 crore.
Most business houses in the country are becoming vertically and horizontally integrated. Won’t the issue of transfer pricing become critical here?
Yes. We will be looking closely at this.