In her budget speech, finance minister Nirmala Sitharaman proposed a potentially powerful tax reform. GoI, it seems, will be incorporating a charter of taxpayers’ rights in the Income-Tax (I-T) Act soon. After the US and Canada, India will become the third country to incorporate such a charter in its tax code. If this statutory charter helps change official attitudes, it could be a game changer, for the way in which government departments function.
The road ahead, however, is pretty steep. Much would depend on how serious GoI is in implementing this reform. The problem that Sitharaman has sought to address is intricate. It’s a significant manifestation of India’s low-trust society.
A citizen’s charter for one department is unlikely to fully address this problem. But a beginning has to be made. A charter is necessary for another reason as well. As US taxpayer service advocate Nina E Olson reminds us, ‘taxpayer rights are human rights’.
The high-handedness of I-T officials against taxpayers has a long history. Overpitched assessments and bogus additions, which officials think nothing of making, spring from a curious mix of anachronistic socialist and feudal values. Some of these date back to the days of the licence-permit raj of the 1950s, when GoI placed stringent controls on the functioning of the private sector. They also reflect the colonial legacy that officials inherited from the days of British colonialism. The British government of India, out of sheer laziness, had entrusted junior officials with vast powers to assess and collect revenue, with hardly any checks and balances. For all these reasons, the I-T department’s current attitude towards businesses, both big and small, is based on distrust, despite the reforms of the 1990s. Demonetisation has only exacerbated this tendency.
Yet, ironically, the department, with all its defects, is the most suited to implement a citizens’ charter. Unknown to most people, it has been at the vanguard of every reform movement in GoI. It was among the first to adopt modern management techniques, particularly, performance measurement and management by objectives. It has won a number of awards for induction of modern information technology in its functioning.
A number of countries have taxpayer charters. Most of these lack statutory recognition. The rights themselves are worded abstractly; an effective enforcement authority gives them substance. Eight rights — to a fair and just tax system; to pay only the correct amount of tax and no more; to quality service; to privacy and confidentiality; to retain representation; to appeal and revision; to be informed; and to have complaints dealt with fairly — figure prominently in most charters.
In the Indian context, these deserve to be included because they are broad enough to cover most of the complaints that arise in a taxpayer’s dealings with the department. Some of them — rights to privacy and confidentiality; to retain representation; to appeal and revision; to be informed; to be heard before an adverse decision is taken; to natural justice; etc — are already part of or are being read into, our tax code. They need to be included in the charter only to bring it in line with international best practices and make explicit what is at the moment implicit.
Other rights — to quality service; to prompt settlements of complaints — are specifically needed to help the department change its values, improve its performance, and compel it to provide taxpayers their entitlements in a timely manner. For this very reason, GoI could consider incorporating time limits for issue of refunds, carrying out rectifications, giving effect to appellate and revisionary orders, etc, currently indicated in the I-T department’s vision and mission statement, into a separate schedule. This should form an integral part of the proposed charter.
Its enforcement could either be entrusted to an ombudsman or a taxpayer advocacy service, designed on the same lines as in the US. In either case, GoI may keep in mind its own recent experience with the institution of I-T ombudsman. This failed to deliver because it was not empowered to redress grievances promptly; appointments were made mechanically, on the basis of seniority, from among retiring chief commissioners of I-T. The finance ministry itself treated the appointment as a mere sinecure for retired bureaucrats.
The reform potential of the charter will remain totally unrealised if these attitudes continue. On the contrary, if the institution is empowered to review over-pitched assessments and delete unwarranted and unsustainable additions, it may play a useful role in the reform of the tax system.
Commissioners of I-T have such powers under Section 264 of the I-T Act that they hardly use. GoI may consider vesting these with the new authority entrusted with implementing the charter.
(The writer was income-tax ombudsman, Mumbai)