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Tax Administration Reforms

Transparency & Efficiency

  • Improved transparency and efficiency are essential due to the major coordination required for tax reforms.
  • Example: The platform launched in August 2020 aimed at "Honoring the Honest," facilitating seamless, painless, and faceless tax compliance.Tax Administrations  
    Tax Administrations  

Technology Utilization

  • Use of technology for analytics and artificial intelligence to simplify processes.
  • Engaging taxpayers as partners in nation-building.Technology 
    Technology 

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Platform Features

  • The platform's focus is faceless, which enhances efficiency and reduces bias.

A Faceless Assessment

  • Launched in August 2020 to eliminate physical interaction and reduce bias.
  • Aims for a system that's efficient, transparent, and accountable.
  • Seeks to resolve taxpayer issues with dynamic jurisdiction and randomized scrutiny, reducing malpractices.

Faceless Appeals

Faceless Appeals Scheme, 2020: Setup to finalize all income tax appeals in a faceless manner under a faceless ecosystem. Exceptions: Appeals relating to serious frauds, major evasion, sensitive and search matters, international tax, and black money are not covered.

National Faceless Appeal Centre (NFAC)

  • Established as the apex body for conducting e-appeal proceedings in a centralized manner.
  • Regional Faceless Appeal Centres (RFACs) operate under NFAC to facilitate the process.
  • NFAC serves as the only point of contact between the taxpayer and the underlying Appeal Units.
  • All internal and external communications take place electronically.Ramesh Singh Summary: Tax Structure in India- 2 | Indian Economy for UPSC CSE

Process Simplification:

  •  Assessing Officers are not required to attend the proceedings personally or through an authorized representative.

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Taxpayer's Charter

Rights of the Taxpayers: Traditionally, tax administration focused on regulating and enforcing tax laws, giving limited attention to the aspect of tax services provided.

Evolution of Taxpayer Rights: In the last few decades, increased demand for better services to taxpayers has led to worldwide recognition of the 'rights of the taxpayers.'

Indian Taxpayer's Charter: The Indian taxpayer's charter comprises commitments by the income tax department and obligations of the taxpayers.Ramesh Singh Summary: Tax Structure in India- 2 | Indian Economy for UPSC CSE

Commitments by the Income Tax Department:

  1. Courteous, fair, and reasonable treatment of taxpayers.
  2. Treatment of taxpayers is honest unless the department has a reason to believe otherwise.
  3. Fair and impartial appeal procedure and review mechanism.
  4. Accurate and complete information for fulfilling tax compliance obligations.
  5. Timely decisions in income tax proceedings.
  6. Collection of the correct amount of due tax.
  7. Respect for taxpayers' privacy and ensuring no more intrusive than necessary enquiry, examination, or enforcement action.
  8. Maintaining confidentiality by not disclosing any taxpayer's information to the department unless authorized by law.
  9. Ensuring accountability for the actions of the tax authorities.
  10. Provision to allow a taxpayer to choose an authorized representative of his choice.
  11. Provision for a mechanism to lodge a complaint and its prompt disposal.
  12. Fair and impartial system to resolve tax issues in a time-bound manner.
  13. Periodical publishing of service standards and reports.
  14. Reduced cost of compliance as the department shall duly take into account the cost of compliance when administering tax legislation.

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Need for Ombudsman

Protection of Taxpayer Rights

  • A dedicated institution for taxpayer grievance and rights protection is essential.
  • The Ombudsman, established initially in 2010 and then set up formally by the government in 2011, acts in adherence to the law to support taxpayers in grievance resolution.
  • It bridges the gap between the tax department and taxpayers, ensuring a non-adversarial approach to dispute resolution.

Efficient Grievance Redressal

  • The Ombudsman handles both direct and indirect tax grievances, introduced in February 2019.
  • It operates under the "Aykar Seva Kendra" (ASK) designed for effective and efficient taxpayer services.Ramesh Singh Summary: Tax Structure in India- 2 | Indian Economy for UPSC CSE

Global Perspective

  • Various countries (Austria, Canada, United Kingdom, Brazil, South Africa, Singapore, and France) have successful ombudsman systems, ensuring the protection of taxpayer rights and addressing grievances without needing to resort to legal proceedings.

Fifteenth Finance Commission 


Ramesh Singh Summary: Tax Structure in India- 2 | Indian Economy for UPSC CSE

Commission Reports

  • Chaired by N.K. Singh, submitted four reports.
  • Final report for 2021-26, tabled in Parliament in February 2021.
  • Key recommendations include devolution criteria and grants-in-aid.

Devolution Criteria

  • Criteria for state shares in central taxes set for 2021-26.
  • Emphasizes rewarding states for performance in certain criteria like demography and tax efforts.

Grants-in-aid

  • The Commission allocated grants from the center to states and local bodies worth ₹10.33 lakh crore for 2022-26.
  • Key grants include:
    1. Revenue deficit grants to 17 states.
    2. Grants to enhance and reward local bodies.
    3. Disaster management grants.
    4. Sector-specific grants including health, education, and agriculture.

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Fiscal Consolidation

  • Recommendation for the center to bring down fiscal deficit to 4% of GDP by 2025-26.
  • Fiscal deficit limits for states set at 4%, 3.5%, and 3% for consecutive years from 2021-22 to 2025-26.
  • States allowed extra borrowing worth 0.5% of GSDP for undertaking power sector reforms.Ramesh Singh Summary: Tax Structure in India- 2 | Indian Economy for UPSC CSE

Debt and Deficit Levels

  • A reduction in total liabilities for the center and states is anticipated.
  • Center’s debt to reduce from 62.9% of GDP in 2020-21 to 56.6% in 2025-26.
  • States’ debt to reduce from 33.1% to 32.5% in the same period.

Recommendations 


Forming a high-powered inter-governmental group to:

  1. Review fiscal responsibility legislation.
  2. Recommend a new fiscal responsibility framework and oversee its implementation.

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FAQs on Ramesh Singh Summary: Tax Structure in India- 2 - Indian Economy for UPSC CSE

1. What is the role of the Fifteenth Finance Commission in tax administration reforms in India?
Ans. The Fifteenth Finance Commission in India plays a crucial role in tax administration reforms. It is responsible for recommending measures to enhance the efficiency and effectiveness of the tax system. The commission evaluates the revenue potential of different taxes and suggests ways to improve tax collection and administration.
2. What are the key objectives of tax administration reforms in India?
Ans. The key objectives of tax administration reforms in India are to simplify tax procedures, reduce tax evasion, broaden the tax base, improve taxpayer services, enhance transparency, and ensure fair and efficient tax administration. These reforms aim to create a taxpayer-friendly environment and promote compliance with tax laws.
3. How do tax administration reforms contribute to the overall economic development of India?
Ans. Tax administration reforms have a significant impact on the overall economic development of India. By simplifying tax procedures and reducing tax evasion, these reforms encourage more individuals and businesses to comply with tax laws. This leads to increased tax revenue for the government, which can be utilized for infrastructure development, social welfare programs, and other initiatives that promote economic growth.
4. What are some of the challenges faced in implementing tax administration reforms in India?
Ans. Implementing tax administration reforms in India is not without challenges. Some of the common challenges include resistance from taxpayers and tax professionals who are accustomed to the old system, lack of awareness about new tax laws and procedures, limited resources and infrastructure for effective implementation, and the need for continuous training and capacity building of tax officials.
5. How can technology be leveraged in tax administration reforms in India?
Ans. Technology plays a crucial role in tax administration reforms in India. It can be leveraged to automate tax processes, improve data management and analysis, enable online filing and payment of taxes, enhance taxpayer services through online portals and mobile applications, and ensure better communication and coordination between tax authorities and taxpayers. The use of technology can streamline tax administration, reduce paperwork, and increase efficiency and transparency in the tax system.
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