What ails Revenue Departments?
THE Commission has listed some of the fault lines in the Revenue Departments. Though everybody knows these things, the Commission has done a good job in listing them - maybe somebody someday will read them and take corrective steps.
Routine placement of officials in the two Boards (with little relation to length of tenure): The selection of Chairs does not take into account the length of their remaining tenures prior to retirement. The selection is based almost entirely on seniority. As an indicator, in 2014 alone, there are likely to be four Chairs of CBDT and three Chairs of CBEC.
Board assignment has little relation to experience or link to specialized areas: The assignment of functions among Members does not necessarily reflect their work experience. Additionally, some areas that comprise crucial matters in modernizing tax administrations are given inadequate attention - for example, information and communication technology (ICT).
Members making policy have little policy experience: Members emerge primarily or exclusively from field functions while, at the Boards, they are expected to design policy. Introduced policies, therefore, are often unrepresentative of the best available and experimented policy options from across tax administrations internationally.
Members' risk aversion leads to low productivity or low motivation to provide guidance or clarity: Positioned beneath a Revenue Secretary picked from another Service, the Boards have tended not to assume a leadership posture, their views and decisions increasingly revealing extreme risk aversion. The outcome is that the Boards' decisions or pronouncements in the form of legislative changes, binding circulars, clarificatory guidance notes or press releases are few and far between, and that too under external force, in contrast with other tax administrations elsewhere.
Risk aversion permeates down, and leads to, infructuous tax demands: The stance of inaction has permeated down to Chief Commissioners and even Commissioners who are averse to taking strong or even correct decisions that would counter infructuous demands made by lower level officers who have been given the role of a quasi-judicial authority.
Rude or arbitrary behaviour of officers with little assigned accountability in practice: The continuing impact on the taxpayer who has been relegated to a position of helplessness is unprecedented internationally. The confusing, if not arrogant, environment that they have to face on a daily basis was reported by high finance officials of major Indian corporations who are some of the largest Indian taxpayers.
Lack of use of Information and Communication Technology (ICT) based data by the Tax Policy and Legislation (TPL) Unit and the Tax Research Unit (TRU): The two departments on both direct and indirect tax sides have made impressive advances in the installation of ICT and its use in the process function. What has not occurred is data mining. The masses of data generated, for example through the expansion of electronic filing, remain essentially unutilized.
Adverse impact of revenue target on tax officer equilibrium: Revenue target is the sole criterion that is effectively used to assess performance. Targets are set in the Union Budget in a static context. No attempt has been made by the Boards to undertake any post mortem study that would analyse whether the projections were correct over a period of time when placed against the economic trajectory during the past year. Instead, the Boards pressure Chief Commissioners, who pressure Commissioners, who pressure lower level officers to meet fixed revenue targets, irrespective of the prevailing condition of the economy.
Defective formulation and implementation of tax law and rules to generate revenue: Since the introduction of the "negative list" of services - only listed services are not taxed while all others are - has wreaked havoc among taxpayers due to poor management of change by the CBEC, reflecting lack of knowledge, preparedness or Board guidance to field officers leading to multiple interpretations combined with the usual lack of accountability for timeliness in clearing up confusion through circulars or guidance notes.
Escalation of disputes and poor recovery from demands: Lack of accountability in raising tax demands without accompanying responsibility for recovery has led to an unprecedented situation in India, which is experiencing by far the highest number of disputes between the tax administration and taxpayers with the lowest proportion of recovery of tax while arrears in dispute resolution are pending for the longest time periods.
Instances of egregious tax officer behaviour: Taxpayers are subjected routinely to rude and arrogant behaviour, are made to wait hours - being called to appear in the morning though met many hours later, sometimes even in the afternoon - are asked to make photocopies of information already sent to the administration again during the visit without availability of copying machines, CEOs of companies being asked to appear when the CFO or an accounts official from the company would suffice. These characteristics signify practice that has descended to unprofessional levels, to put it mildly.