If you carried out a high-value transaction in fiscal 2018-19 that did not square with your income tax return statement for that year, as assessed by a formula, do not be surprised if you receive a letter or email from the income tax department one of these days. If you did not file a return at all, be prepared for even more explanations demanded. Starting this week, the department has begun shooting off such missives to errant individuals. This is part of a big data-gathering exercise aimed at ensuring that taxpayers file returns regularly and disclose incomes correctly. The taxman is watching, and this will be made amply clear. Indians are to be acquainted with details of their high-value transactions, be it a purchase of assets like property or shares, or a big holiday booked via a credit card. Electronic processing allows all manner of information to be captured, and our tax authorities would like everyone to know it has access to data from sources like banks, property registrars and credit card companies. Earlier, these figures were trawled only for cases of special scrutiny. Now, these will show up on your 26AS form, which is your annual tax credit statement.
At a broader level, this use of information technology is necessary if we are to widen India’s tax base. Barely 5% of Indians pay income tax, though sundry indicators suggest many more ought to. If India is to overcome its challenges of social and economic development, the proportion of Indians paying taxes must rise. The key to this would be a sharp increase in tax compliance. For decades, the government was technologically ill-equipped to enforce its taxation code properly. But that has changed in the span of just half a decade. The country has grown data-rich and algorithms now exist that can—in theory—scan vast datasets to detect anomalies. The deployment of such software, however, is likely to turn the tax system almost entirely automated. Given global trends in technology, such methods of tax enforcement seem inevitable. On the face of it, digitization offers an assurance of accuracy. Our instinct has been to trust digital computation. Also, it promises to thwart rogue officers who may misuse their authority to line their pockets. But the wonders of it should not be exaggerated. Once a machine makes an error, which can happen for reasons that range from poor programming to slipshod data entry, fixing it could be extremely difficult.
While the complexity of Indian taxation makes the filing of taxes very hard, we must admit that it also complicates the creation of digital tools that can deal with every financial circumstance that may arise. If the country’s tax bureaucracy is opaque to citizens, so are the innards of its computers. This makes it all the more important to put effective redressal mechanisms in place. If grievances arise, people should not be left at the mercy of automated responses, inaccurate website screens, and pre-recorded voices. This prospect raises the spectre of a robot taxman, one that has bits and bytes of data pooled from everywhere at its digital fingertips, so to speak, but is largely deaf to genuine complaints. Faceless interaction was meant to stop the harassment of taxpayers by corrupt officials, but unless the systems in use are perfect, we may be exposed to new risks. We could end up in a Kafkaesque loop because of a misread deal struck online, for example. Let’s put our new tax robot to a stress test before it gets too far.