1.customer focus:
. There should be a dedicated organisation for delivery of taxpayer services with customerfocus for each of the Boards. There should be an exclusive Member in each Board for the
taxpayer services.
• Taxpayer service delivery will be located under one umbrella for large taxpayers, i.e., the
CBDT and CBEC will jointly function for large taxpayers through Principal DG (LBS).
For other taxpayers, i.e., medium and small, the operations of the CBDT and CBEC will
continue in separate chains.
• Officers and staff at all levels of tax administration should be trained for customer
orientation. Further for people posted in this vertical, the training in customer focus need
to be more specialized and intensive. This training should be appropriate to the areas in
which such officers are deployed such as customer relationship, measurement of customer
satisfaction, taxpayer education, etc.
• In line with the international practice of spending 10-15 per cent of the administration’s
budget, a minimum of 10 per cent of the tax administration’s budget must be spent on
taxpayer services. At least 10 per cent of the budget for tax administration should be
allocated and spent for ICT-based taxpayer services.
• Sufficient funds must be allocated to conduct customer research including, in particular, on customer surveys.
• In redressing taxpayer grievances, the decision of the Ombudsman should be binding on tax officers. To bring independence and effectiveness to the office of the Ombudsman, non-government professionals should also be inducted in the post.
• There is an urgent need to revisit the present citizen’s charter to make it more meaningful
and customer focused. The citizen’s charter should be renamed the taxpayer’s charter to
focus on all categories of taxpayers.
• There should be a regular stakeholder consultations on the issues of tax disagreements and
tax law changes. The Commission recommends a permanent body for stakeholder
engagement.
• There should be a system for online tracking of dak/grievances/applications for refund etc.
It should be made mandatory to receive all dak through a central system generating a unique
id. The ASK software implemented by CBDT provides such a mechanism in a limited manner. This needs to be extended to all offices. The functionality to enable the taxpayer to track the status of his application/grievance online should be added to the ASK system. Similar system for online receipt of application should be enabled on the indirect tax side.
• Continuous benchmarking of the tax administration, particularly in relation to delivery of
taxpayer services, with that of other tax administrations should be done to highlight the
area of focus.
2.STRUCTURE AND GOVERNANCE:
• The two Boards must embark on selective convergences immediately to achieve better tax
governance, and, in next five years, move towards a unified management structure with a
common Board for both direct and indirect taxes, called the Central Board of Direct and
Indirect Taxes.
• The convergence can begin for large business segment by setting up of a large business
service (LBS) which will be integrated and operated jointly by both the Boards. This will
be a taxpayer segmentation by the tax administration, and joining LBS will not at the option
of the taxpayer. All the core tax functions will be managed jointly by officers of both the
Boards.
• The tax administration needs to have greater functional and financial autonomy and
independence from governmental structures, given their special needs.
• The post of revenue secretary should be abolished. The present functions of the Department
of Revenue should be allocated to the two Boards. This would empower the tax departments
to carry out their assigned responsibilities efficiently.
• A Governing Council, headed by chairperson of the two Boards, by rotation, and with
participation from outside the Government, should be set up at the apex level to oversee
the functioning of the two Boards.
• An Independent Evaluation Office (IEO) should be set up. Its main work would be to
monitor the performance of the tax administration, promote accountability, evaluate the
impact of tax policies and assess all factors that affect tax administration. IEO will report
to the Governing Council so as to ensure its independence.
• A Tax Council should be set up to develop a common tax policy, analysis and legislation
for both direct and indirect taxes. The council will be headed by the Chief Economic
Adviser of the Ministry of Finance.
• Common Tax Policy and Analysis (TPA) unit comprising tax administrators, economists,
and other specialists such as statisticians, tax law experts, operation research specialists and
social researchers should be set up for both Boards.
• Each rule, regulation and other tax policy measure such as exemptions should be reviewed
periodically to see whether they remain relevant to the contemporary socio-economic
conditions and meet the changing requirements. For this, a robust process should be
institutionalized.
• Keeping that in mind, the two Boards should be expanded to have ten Members, apart from the ChairpersON
• The two Boards would be responsible only for policy dimensions of tax administration,
while the directorates under them would be responsible for operations in the field
formations.
• The field formations are currently organized to handle all key functions in a particular
geographic region. In order to bring about a functional orientation, field offices will need
to be restructured along the core functions of taxpayer services, compliance, audit, dispute
management, enforcement and recovery, etc.
• specialization should be encouraged by selecting suitable officers and providing them sufficient tenures to develop specialized knowledge in key sectors.
• A common approach for developing robust and comprehensive enterprise risk management
framework should be adopted by the two Boards.
• There should be one Knowledge, Analysis and Intelligence (KAI) centre for both the
Boards and its role should be recognized and used for policy and operational effectiveness.
3.E FUNCTION
• Both the departments should shift all their key operations to the digital platform so that
performance can be reliably measured.
• A system of limited departmental competitive examinations should be introduced by
earmarking 33 per cent of the vacancies in the promotions quota in Group B as well as
Group A, so that relatively more meritorious and younger officers in the feeder grades can
get a fast track in promotions.
• Provision should be made for lateral entry of experts in key roles and specialized areas.
While they may be on contract for 5 years, subject to their suitability and willingness they
should be able to integrate with the organisation at the end of the contract period.
• The CBEC needs to develop a human resource management system, as has been done by
the CBDT; collaboration and knowledge exchange between the two DGs (HRD) will
enable CBEC to get such a system going in shorter time.
• A comprehensive performance management system needs to be set up for both tax
administrations by revisiting and reconstructing the RFD.
• Key performance indicators, detailing the performance areas, objectives, key initiatives,
performance indicators and performance targets, should be arrived at using the Balanced
Scorecard methodology.
• The performance appraisal process needs to be made more wholesome and reliable by
making it more open and by introducing a mid-year review.
• The tax administrations should extend the performance appraisal system to elements of
360° appraisal to include feedback from subordinates.
• The outcome of discussions during the performance appraisal process should result in the
superior taking responsibility for juniors by putting in place an improvement plan to
overcome their weaknesses.
• Performance needs to be recognized through non-pecuniary measures such as giving
important assignments in chosen areas of work or specialization. (Section IV.3.d)
• To facilitate renewal of talent and professional growth, officers should be allowed to move
outside the departments for defined periods of time. (Section IV.3.d)
• The career of IRS officers should be divided into three phases:
o The first 9-10 years should be spent rotating through different functional areas to gain familiarity
o The next 8-9 years should be in two or more specialist areas
o Persons showing the ability for top leadership will go into the third phase and constitute
the pool from which selection will be made for top positions
• A common assessment centre for the two Boards needs to be set up by the people function
to make a thorough, all round assessment of officers at the first transition point.
• In view of a different promotion system being recommended, the UPSC should be
consulted for exempting these promotions in the IRS from their purview like some other
services, e.g., the Indian Foreign Service, Indian Railway Services and Indian Audit and
Accounts Services are exempted. However, if the UPSC is willing to be associated with the
altered promotion scheme, that option should be considered.
• A formal mentorship programme may be set up, with carefully selected mentors.
• The transfer and posting policy should be recast to promote specialization and
accommodation of individuals’ choices in professional growth and should bring about
predictability, stability and certainty to placements. Personal difficulties of officers should
receive due consideration.
• DGs (HRD) should assist the Boards in transfers and postings and they should be member
secretaries of the placement committees. The administration section should have no role to
play.
• Learning and development should occupy a central place in people advancement and all
officers must undergo a minimum 10 days of training every year.
• More emphasis in training needs to be given on customer focus and value education.
• A code of ethics needs to be developed, congruent with the values in the vision and mission
statement.
• There should be more proactive approach to preventive vigilance.
• CVC should have a Member who has been an officer of either of the IRSs and there should
at least one Joint Secretary/Additional Secretary level officer posted in the secretariat of CVC.
• No cognizance should be taken of anonymous complaint as laid down in the existing DoPT
instruction.
4.DISPUTE MANAGEMENT
• For clarity in law and procedures, a process based on best practices outlined in Section
V.4.b should be followed.
• Retrospective amendment should be avoided as a principle.
• Fundamental approach should be collaborative and solution oriented.
• Both the Boards must immediately launch a special drive for review and liquidation of
cases currently clogging the system by setting up dedicated task forces for that purpose.
The review and liquidation should be completed within one year and the objective should
be to decide all cases pending in departmental channels for longer than a year as on the start
date of the action plan. (Section V.6)
• Dispute management should be a functionally independent structure with adequate
infrastructural support.
• Officers posted in the dispute vertical must receive adequate induction training and on-the-
job training on areas.
• To minimize the potential for disputes, clear and lucid interpretative statements on
contentious issues should be issued regularly. These would be binding on the tax
department.
• The current practice of raising demands irrespective of merits should be discontinued. Call
book in CBEC should be abolished.
• The process of pre-dispute consultation before issuing a tax demand notice should be put
into practice.
• Disputes must get resolved in time as the times lines as mentioned for decisions in the
respective enactments. The law should also prescribe the consequences of not adhering to
the time lines, which would be that the case in question would lapse in favour of the
taxpayer.
• Ordinarily appeal should not be filed against appeals of Commissioner (Appeals), except
where the orders are ex-facie perverse.
• The DRP in income tax should be made full-time panels. Their mandate should be
expanded to include corporate cases of resident cases as well. Same mechanism should be
introduced in indirect taxes also, where collegium of three Commissioners would be
deciding complex cases involving extended period of limitation, related party transactions
and taxability of services.
• Appeals to high courts and the Supreme Court should only be on a substantial question of
law.
• Authorized representatives from the departments should be carefully selected and given
sufficient incentives and necessary infrastructural support to perform their duties
effectively. They should also be given specialized training before they are asked to appear
for the department. The administration of the DR function should also be in the dispute
management vertical.
• On disposal of a case by Supreme Court/High Court and if the judgment is accepted by the
Department, an instruction should be issued to all authorities to withdraw appeal in any
pending case involving the same issue.
5. EPROCESSES
• Registration
o The present permanent account number (PAN) should be developed as a common
business identification number (CBIN), to be used by other government departments . A better regulatory system should be put in place to enhance its robustness and reliability.
o Both central excise and service tax should be covered under a single registration as both
the taxes are administered by the same department and cross utilisation of credit is
permitted between central excise and service tax under the CENVAT credit rules.
o It is necessary to provide for de-registration, cancellation or surrender of registration
numbers and PAN.
• Tax payments
o Banks should be left to authorize their branches to collect taxes, and the present process
of selection of banks needs to be purely standards-based and transparent.
o Payment gateways should be increased for better customer convenience.
• Filing of tax returns
o I-T returns should also include wealth tax return so that the taxpayer need not separately
file wealth tax returns. These returns should also be processed together in the CPC at
Bengaluru.
o The disclosures in the return should include a brief mention of the issues on which there
has been an on-going litigation between the tax administration and the taxpayer, and
should indicate the factual and legal position adopted while computing taxable income
for a year. This is to protect taxpayers from allegation of non-disclosure, suppression,
escapement of income, etc., which often results in the initiation of penal provisions.
o Taxpayers should give information on their compliance experience at the time of filing
returns; this information should be used to improve taxpayer service bringing in
customer focus.
o Territorial jurisdiction should be dispensed with and industry-based assessment should
be introduced in line with recommendations in Chapter III of this report.
o The CBEC should set up centralized processing units in line with the CPC, Bengaluru,
and CPC-TDS at Ghaziabad for processing central excise and service tax returns.
o There should be a common return for excise and service tax.
o The CBEC should set up an e-portal and all invoices should be issued from that portal.
This portal should be linked and made compatible with SAP ERP systems, which a
majority of the companies use for their own invoicing. E-invoice would simplify
credit/refund procedures, which would become automatic.
• Scrutiny in direct taxes and audit in indirect taxes
o Hearing in all tax cases by personal presence should be avoided, and data can be sought
through an e-system. The taxpayer can upload the data on the e-system. Personal
hearing should be sought only in complex cases.
o There should be specialization in scrutiny/audit work as recommended in Chapters III
and IV of the report. Capability should be developed through training and re-training.
The two Boards should also develop a standard audit protocol, with clear emphasis that
the AOs must follow the principles of natural justice and respect the taxpayer rights to
privacy and dignity.
o Audit Commissionerates in the CBEC should undertake integrated audit covering
central excise and service tax together and the onsite customs post clearance audit
(OSPCA) in case of accredited clients (ACP), as the records and books to be verified
are common to all the taxes administered by the CBEC. In major cities where exclusive
Central Excise or Service Tax Commissionerates are functional, the audit function
should be assigned to a specific Audit Commissionerate for carrying out integrated
audit of customs, central excise and service tax.
o Joint audits should be undertaken by field formations of the CBDT and the CBEC to
shorten the examination processes and reduce costs, both the for tax administration and
for taxpayers. This may require a change in procedures for the CBDT as at present, the
I-T Act does not have a provision for open audit as is done in indirect taxes.
o Broad-based selection filters for the risk assessment matrix should be put in place.
There is also a need to set up a standard operating procedure which recognizes the
iterative method, testing them ex-post, to develop effective and efficacious parameters
for the risk assessment matrix.
• Refunds
o Refunds should be issued within a strict time frame. There should be a separate
budgetary head for refund of direct tax and indirect taxes in the annual budget out of
which refunds should be issued so that there is transparency. Adequate allocation
should be made by the government under this head.
o Refunds sanctioned should be paid along with the applicable interest automatically as
is done in the case of income tax and not on demand by the taxpayers. As in the case of
direct taxes and customs duty drawback, the refund and interest payment should be
directly credited to the bank account of the taxpayer.
o The rate of interest on refunds should be the same as the interest charged by the tax
department. This would ensure equity between the two interests and would not
disadvantage the taxpayer unduly.
o Refunds arising after a favourable appeal should be paid in time or the tax payer should
be allowed to set-off the advance tax liability or self-assessment tax liability of
subsequent years against the refunds due.
o The test to determine whether there is unjust enrichment in indirect taxes should be
limited to cases of refunds where there is direct passing on of amounts claimed as
refunds. In any other situation, this concept should not be applied.
o Refund claim subjected to pre-audit verification should be issued within a specified
time. The post-audit verification of refund claim should be risk-based.
o An easier and simplified scheme should be introduced for service exporters. The entire
refund filing and processing mechanism should be online.
• Foreign tax credit
o The CBDT should come out with clear FTC guidelines, which should also cover the
timing differences between different tax jurisdictions.
• Tax collections
o There should be a separate vertical for tax collection as recommended in Chapter III of
this report. To improve the efficiency of debt collection activities, both the Boards
should work on setting up risk assessment models to compute risk scores for each new
tax debt case that reflects the likelihood of the taxpayer paying their debt based on
objective criteria.
o Stay of demand information should be uploaded electronically on the central server of
the departments so that tax collectors can have system generated prior intimations
regarding the expiry of stay orders.
o The power to write off dues should be raised at different levels of the organization and
made uniform for both direct and indirect taxes. Full powers should be vested in the
respective Principal DGs in charge of recovery in the respective Boards. Write off
should be done in concurrence with the CFO at the headquarters level and his nominee
at the regional/zonal level.
• Related party transactions
o Both Boards should frame detailed documentation requirements for transfer pricing as
well as custom valuation, keeping in view that such documentation should be
reasonable, to bring certainty and predictability for the taxpayers.
o There is a need to align the process in India with global best practices and to do away
with the current process. With self-assessment in place, import transactions should only
be subjected to post-clearance audit. Valuation risks would be an important component
of the risk matrix for audit selection.
• Trade and business facilitation
o As a trade facilitation measure, on-site post clearance audit should be developed fully
to enable Indian customs to move closer to international best practices. Intervention in
the cargo clearance should be made on the basis of a risk matrix.
o Documentation requirements for non-resident taxpayers for a certificate under Section
197 of the I-T Act should be well-publicized. The taxpayer should be told a priori the
time that will be taken for the issue of the certificate. That time period should be
reasonable. A certificate issued in an earlier year from any other tax office in India to
an assessee/payer should be attached with other documentation. There should also be a
facility for electronic filing of these papers so that the need for the physical presence of
the taxpayer is, to the extent possible, obviated.
o The system of E-invoicing similar to that prevalent in most Latin American countries
should be introduced. Using this system a taxpayer should generate an electronic invoice through the Department’s system. Sufficient preparation and consultation with
the industry and trade associations should be done before introducing this system.
• Enforcement Administration
o There should be a dedicated structure for prosecution matters for more focused attention
to this important area so that the unexploited potential for creating deterrence against
tax evasion is realized.
o The working of the Directorate of Intelligence and Criminal Investigation should be
ICT based and should be given a good complement of personnel and other resources to
make it realize the potential.
• Non-profit sector
o CBDT needs to put in the public domain a national database of the non-profit sector to
bring transparency.
• Manual of tax departments
o Departmental manuals should be annually updated and put up on the website for easy
downloading by both taxpayers and tax officers.
6.ICT
• For full realization of the potential of ICT, it must get embedded in the DNA of the
organization. Both the design of policies and implementation should make full use of ICT
(Section VII.3.a)
• The leadership must ensure that where systems are available, employees should not have
the option to work in a paper environment (Section VII.3.a)
• Both Boards must commit themselves to achieve a fully digitized environment and work
towards comprehensive ICT system(s) in which everyone from the top leader to the last
person on the frontline works in a digital environment (Section VII.3.a)
• The Boards must regularly use maturity frameworks to assess their ICT maturity and map
out the path towards greater maturity (Section VII.3.a)
• Automation should follow business process re-engineering to avoid the danger of getting
trapped in an outdated mode of governance (Section VII.3.a)
• All decisions should be taken with ICT compatibility in mind. Similarly, all legislation
should be ICT-compatible (Section VII.3.b)
• The Boards must create structures and processes to enhance working relationships between
business owners and DG (Systems) to ensure that ICT initiatives are aligned with business
needs, priorities and capabilities (Section VII.3.b and d)
• Boards should adopt a robust ICT governance framework and practices, and rigorous
programme and project management frameworks (Section VII.3.b)
• Project planning and approvals must include the required number and quality of human
resources (Section VII.1.b)
• Movement of personnel should have a linkage with project implementation and there
should be a process of knowledge transfer (Section VII.1.b)
• A service oriented architecture and approach should be adopted to promote integrated
systems, greater “value for money” and customer focus (Section VII.3.b)
• HR policies must be aligned with the need for specialization and officers should be allowed
to grow in the areas in which they specialize. Routine transfers should be avoided (Section
VII.3.d)
• Special training for officers in key areas of ICT should be arranged for officers of DG
(Systems) (Section VII.3.e)
• DG (Systems) should ensure proper training for operational staff at the roll out of any new
application (Section VII.3.e)
• DG (Systems) should have authority and funding to depute officers for specialized courses,
seminars and events and engage with professional networks and academic institutions
(Section VII.3.e)
• The discussions for data sharing between CBDT and CBEC should be speeded up and
sharing must begin quickly (Section VII.4)
• A shared knowledge, analysis and intelligence centre, headed by an expert professional,
should be set up for advanced data analytics and research. The SPV can support it by
providing the platform, tools and technologies, and expertise (Section VII.4)
• A common special purpose vehicle (SPV) should be set up for servicing the ICT needs of
the Boards (Section VII.5.a)
• It should be incorporated as a company with limited liability under the Companies Act and
should have a private ownership of 51 per cent and government ownership of at least 26
per cent. It should have operational independence and institutional flexibility even as
government retains strategic control (Section VII.5.c)
• The SPV should preferably have a net worth of around Rs.300 crore. This will ensure that
the SPV is well-capitalized, can hire the best people at competitive salaries, and invest
adequately in infrastructure to manage large-scale national projects.
• The relationship between the departments and the SPV should be a complementary one.
The tax administration would develop an overall strategy with the ICT inputs provided by
the DG (Systems). The SPV will develop the ICT strategy within the framework of the
overall strategy, which will be approved by the Boards. The DG (Systems) of the two
Boards will continue to exist, and will perform more strategic roles and be the Boards’
interface with the SPV (Section VII.5.e)
• It should aim to be financially self-sustaining through an appropriate business model
(Section VII.5.f)
• It should be operationally aligned and maintain relationships with the concerned entities in
DG (Systems) to ensure effective ICT service delivery (Section VII.5.h)
• The Boards, DG (Systems) and the SPV together should work out the plan for the
transformation to “digital by default” status. The plan should begin with a visioning
exercise to define the end state and should be programme, as opposed to project, oriented.
FAULT LINES:
1.Position of Revenue Secretary and autonomy of the two Boards
2.Artificial separation of two tax Boards
3.Routine placement of officials in the two Boards
4.Board assignment has little relation to experience or link to specialized areas
5.Members making policy have little policy experience
6.Members’ risk aversion leads to low productivity or low motivation to provide
guidance or clarity
7.Risk aversion permeates down, and leads to, infructuous tax demands
8.Taxpayers express helplessness against rude or arbitrary behaviour of officers with
little assigned accountability in practice
9.Complete absence of economic, statistical, behavioural, or operations research-based
analysis of policy or of taxpayers prior to making major or minor legislative or
subordinate legislation-based (rule-based) decisions
10.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):
11.Adverse impact of revenue target on tax officer equilibrium
12.Escalation of disputes and poor recovery from demands
13.Virtual absence of customer focus
14.Irrational approach to vigilance over officers
15.HRD - or People - function
16.Role of ICT
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