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Taxation Process Gets Major Revamp
November, 17th 2008

If you have filed your IT returns electronically this year without hassles, thank the sixty-thousand strong direct taxes department in the Finance Ministry of India that is shaping itself for a makeover. Technology is being employed on a scale never seen before. The intention is to collect more taxes with a minimally invasive manner, choke opportunities for corruption, and improve the overall experience of paying taxes.

Consulting house PricewaterhouseCoopers was engaged in May last year to study the processes and give a report in six months. A detailed presentation of their recommendations was made to the Central Board of Direct Taxes earlier this year.

Increasing workload coupled with shortage of space and manpower

The Direct Taxes department s resources are facing intense pressure as the number of returns filed in the last four years has increased by an average of 12 percent annually. Last year 2.78 crore returns were filed; however, at the beginning of July 2008, there was a backlog of 1.78 crore returns waiting to be processed. The department s attrition rate has also been higher than its recruitment rate; the number of officers working to collect direct taxes has declined from 3,400 in 2003 to 2,600 currently. So there is shortage of staff to meet the task demands at hand.

"We are hopelessly short of space and manpower. So what we are trying to do is move towards centralised processing of returns at three-four locations across the country," said Ajai Singh, member, Central Board of Direct Taxes (CBDT).

Centralised processing of tax returns

The exercise was initiated by Vijay Kelkar, who served as advisor to the former finance minister Jaswant Singh. Current finance minister Chidambaram is also pushing this exercise earnestly.

In the 2006-07 budget speech, Chidmabaram outlined his plan for modernising the tax department by networking the 745 income tax offices spread across 510 locations, creating a national database in Delhi, with back-ups in Mumbai and Chennai. More importantly, he said that the processes would be changed to mesh with the new technology.

The networking initiative has ushered in the third phase of computerisation. The task of physical networking of the offices is complete and the migration of data from 36 regional centres to a single data centre in Delhi will be over by the end of this year. IBM has been awarded the contract of integrating the old systems with the new systems. The new system will allow the tax department to ferret out likely tax evaders by looking for patterns of behaviour and logical inconsistencies.

"Jurisdiction free filing of returns, online tracking of statement of accounts and IT returns will now be possible," said Chidambaram.

Post the modernisation initiative, the tax payer will be able to file returns from anywhere in the country and will not be bound to his/her ward. If their returns are in order, they will not have to interact with the tax department at all; this will also help to curb the chances for corruption to occur.

Alongside, the department will move towards centralised bulk processing of returns. A pilot facility is coming up in Bangalore and should be ready for operations by March next year. With a capacity of 60 lakh returns, it will cater to the whole of Karnataka, including Bangalore.

Currently, data from tax returns is manually entered. In the Bangalore facility, the returns will be first scanned, and then figures from the scanned images will be fed into the machines by two sets of operators and reconciled electronically to eliminate data entry errors. Each facility will have a capacity to process about 60,000 lakh returns. If the returns are clean, and most of them are expected to be, that will be the end of the matter. Machines will verify the returns for arithmetic accuracy (though not for authenticity), give credit for taxes paid, inform the refund banker in case refunds have to be made, or send a pre-filled challan to the tax payer if they have paid short.

"When you focus on improving standards and compliance, you address the issue of non-compliance in a sophisticated manner. You do not have to chase individuals. If there is certitude, reduce the tax information gap through data mining," said Singh.

Business process reengineering study and recommendations

Ramji Sinha, the officer charged with business process re-engineering, began the exercise by taking officers and staff union members into confidence.

The consultants were taken to 15 locations across the country to study working methods. These locations were a mix of metro, mid-size cities, and smaller towns. There were extensive consultations at every stage and level, including the unions, involving 840 officials from chief commissioners to group C employees. A 'voice of the customer' survey was conducted in 12 stations. On this basis, alternate 'to be' models were prepared.

The study recommended that the present activity of scrutiny, rectification, recovery and appeals should continue. However, the assessment officer doing scrutiny would be equipped with an information kit containing reasons for selection of a case, relevant third party information, industry and trade specific information and judicial pronouncements. The system will alert the officer to cases that are getting time barred, or require rectification or appeal. A central registry would be set up to enable bunching of similar cases, for faster disposal, and for equitable distribution of work, unlike now when there is wide variation in work loads.

An important recommendation is related to record management. All paper returns will be digitised and will go into deep storage. Information required for scrutiny will be electronically transmitted to the officer concerned. Papers will be retrieved only for prosecution. The entire record keeping will be outsourced.

"We have some more distance to travel as far as computerisation of excise duties and direct taxes is concerned. However, what has been achieved in the past four years is truly remarkable," concludes Chidambaram.

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