Result Framework Document of Income Tax Department
DIRECT taxes, now the major source of tax revenues to the central government, have grown at an average annual rate of 24% in the last five years and have nearly trebled from Rs. 1,32,771 Crore in 2004-05 to about Rs 3,78,000 Crore in 2009-10. The contribution of Direct Taxes to the Central Tax Revenues has grown from 43.79% to 60.5% during the same period. The ratio of direct taxes has increased from 4.1% of GDP in 2004-05 to 6.1% in 2009-10. The Thirteenth Finance Commission (2010-15) has projected direct tax revenue collection at Rs 8,29,668 Crore by 2014-15 and direct tax to GDP ratio of 7.62%.
The vision of the Income Tax Department (ITD) is to be a partner in the nation building process through progressive tax policy, efficient & effective tax administration and improved voluntary compliance. This will be achieved by an enabling policy environment and augmenting the revenue mobilisation apparatus for optimum revenue collection under the law, while maintaining taxpayer confidence in the system.
The strategic planning for this purpose will have to be done in dynamic settings taking into account external challenges & opportunities and internal strengths & constraints. This document states the Vision 2020 and a strategic plan covering the five year period 2011-15. A mid-term review of the implementation of the plan will be done in 2013. The Strategic Plan itself will be reviewed in 2014 to evaluate the effectiveness of the initiatives taken, requirement for course correction and the need, if any, for new initiatives in the next five years.
Challenges & Opportunities in the new decade: Estimation of the true revenue potential with a customised forecasting model will help ITD to quantify the gap between the potential revenue and the actual collection. A study on the extent of the revenue leakage with clear identification of the activities and the factors responsible for its growth will help ITD to optimise its revenue mobilisation.
Complexities in Tax Laws: Complexities in tax laws are regarded as one of the major impediments to voluntary compliance. A lot of effort has been made in the past decade to simplify the direct tax laws in the country. This effort needs to be continued in future also.
Assessment and Reduction of Compliance Risk: Complexity and innovation in business structures, new financial products, large number of taxpayers, growth in international trade supported by rapid expansion of e-commerce, commoditisation of tax avoidance schemes, are some of the factors leading to increased compliance risk for the tax administration. It may not be possible for ITD to address these risk factors through the traditional tools based on verification and enforcement action alone. ITD has to pay greater attention to understanding the factors that shape taxpayers' compliance behaviour in order to craft and implement potentially more effective set of responses. The challenge before the ITD is to identify and assess compliance risks, not only domestically but also internationally, on the basis of priorities identified with the help of a sound risk management system.
Human Capital Challenges: The human resource of ITD with over 57,793 employees is the strategic foundation of the ITD. Skilled and committed employees who are valued and treated equitably are more likely to be fair and professional in their dealings with taxpayers. Creating opportunities for development and advancement of careers is an instrument for developing an attractive work environment. The challenge is to motivate and equip each and every member of ITD to reach his or her unique and full potential.
Development of Real Time knowledge Sharing Mechanism: In a knowledge driven organisation like ITD, it is imperative for its personnel to update their knowledge constantly. Knowledge connotes ability to understand the law and its myriad interpretations as well as ability to understand accounts. At another level, knowledge comprises the ability to detect evasion, devise strategies for improving compliance, improve internal efficiency and efficacy, compete globally to attract and retain multinational taxpayers. The challenge is to identify the requirements of knowledge by various functionaries of ITD, institutionalise the process of imparting and co-creation of knowledge, create an institutional memory and put in place a mechanism for real time sharing of knowledge by developing both formal & informal channels.
Technology Transforming Rules of Commerce: Advent of new technology poses both challenges and opportunities for ITD. Technology has changed the very basis of commerce. With rapid expansion of sophisticated computer and communications technology, taxpayers are finding innovative means to conceal economic transactions. This paradigm shift in the very basis of commerce calls for a fundamental change in ITD's conduct of its affairs. A fresh look has to be taken in various functional areas including investigations, taxpayer services, legal framework, skill sets of its personnel, placement of officers across international tax jurisdictions, making in-house technical support & expertise available and making changes in internal structure.
Explosion of Digital Data: The volume of data the ITD is handling today is huge as can be gauged from 270 million entries relating to tax deducted at source alone. This volume will only grow manifold in the coming decade. Data pertaining to high value transactions received from third parties is worth Rs. 100 trillion today. The present day network, which operates on “Single Application Single Database” model, is soon likely to be rendered inadequate. The challenge for the ITD is to develop computational capacity with facility for web computing.
Accelerating Globalisation: The administration of a tax code is much more complex in an open global economy. Taxpayers are more sensitive to differences in inflation, tax treatment, exchange rates, tax rates and the ability of tax administrations to monitor trade and income flows. Generation of income across the world poses a challenge to the ability of revenue authorities to verify the accuracy of taxpayers' returns thereby increasing the risk of incidence of tax avoidance. International tax advisors act in concert to put together complex structures spanning various jurisdictions taking advantage of the technology. In this scenario, protection of tax base and collaboration amongst tax authorities becomes essential. The challenge before ITD is to take a leadership role in protecting the national tax base through concerted efforts and active participation in global fora.
Transition from 1961 Act to DTC: The introduction of the new Direct Taxes Code (Bill), 2010 (DTC) in the Parliament is a landmark event in the history of 150 years of Income Tax in India, posing both challenges and opportunities. At an operational level, the transition from a fifty year old 1961 IT Act to the new DTC would require effective communication with the taxpayers through awareness programs about the new law. Departmental personnel will also have to be trained on the new tax code.
Removal of Barriers to Voluntary Compliance: Promoting voluntary compliance is one of the prime concerns of ITD. Voluntary compliance is enhanced when taxpayers find it easier to comply with tax laws. The challenge before the ITD is to identify the barriers to voluntary compliance and take proactive steps to remove them by putting in place excellent public service delivery mechanism. ITD intends to be responsive and sensitive to the needs of all categories of taxpayers by segmenting taxpayers for crafting targeted facilitating packages after ascertaining the specific requirements.
Reduction in Compliance Cost: Tax compliance costs impose a burden on the taxpayers. If the amount is a big percentage of the tax payable, it deters small & medium taxpayers from being a part of the tax system. The challenge before the ITD is to ascertain the extent of compliance cost for different categories of taxpayers and develop focused programmes to reduce the compliance costs for improving voluntary compliance.
Meeting Increasing Aspirations of Taxpayers: The ITD has been rolling out various services to the taxpayers to make compliance easier for them. However, many of these services have not been optimally utilised by the taxpayers. There is a need to analyse the requirements of the taxpayers for developing a channel strategy for delivery of services.
Transition to an Era of E-governance: E-governance is viewed by ITD as strategic tool for transforming Governance and improving the quality of services provided to the taxpayers. It enables delivery of services as per the convenience of the taxpayers in a cost effective manner while ensuring accountability. With the increase in Internet and mobile connection amongst the citizens in India, taxpayers look forward for a one stop solution from the ITD that can be accessed easily for getting a desired service. The challenge before the ITD is to set clear goals to meet the expectations of taxpayers with focus on outcomes. ITD has to address the need for ‘Integrated Service Delivery' mechanisms cutting across functional areas of ITD.
Faster Resolution of Disputes: The rising litigation with the taxpayers and the quantum of revenue locked up in appeals is a matter of serious concern that requires attention. ITD intends to address this concern with comprehensive proposal for reducing unwarranted litigation with taxpayers, faster disposal of appeals and prompt redressal of grievances in a consistent manner.
Estimating the Tax Base & Developing a Revenue Forecasting Model: The first step for optimisation of revenue mobilisation is to ascertain the true tax base of the country. ITD intends to develop a revenue forecasting model by identifying the tax base and the variables influencing direct tax revenue from the perspective of tax administration.
Instituting Study on Plugging of Tax Leakages: In its optimization effort, ITD has to ascertain evasion prone sectors of the economy; reasons for non-compliance; possible methods of tax avoidance and evasion; and measures to plug such tax leakages. To this end, a study by a broad based group of experts coordinated by departmental officers will be carried out.
Well, Let's hope they achieve at least a fraction of all these lofty goals.