Analysing revenue information-II

Tax administration advances, though continuing improvement remains paramount

This month we focus on income tax administration. We begin with how the officers’ workload has changed. First the derivation. Officers’ workload in year t is the sum of undisposed assessment cases in year t-1 plus new cases of current year t. ITD’s Table 1.8 (not reproduced here, last published in 2017 and this table was discontinued in 2018) reports data on: (1) year-beginning workload or “total” cases; and (2) year-end disposed cases. We converted this to: (3) undisposed cases; and (4) year-beginning “new” cases, as follows. For 2013-14, (1) is 30,456,681 and (2) is 19,924,496. Thus, the difference, (3) 10,532,185, is undisposed cases which are carried forward to 2014-15. Therefore, new cases for 2014-15 must be (4) 21,254,217, which is the difference between carried forward cases (3) for 2013-14 and total cases (1) for 2014-15 (reported in ITD Table 1.8 as 31,786,402). We repeated the exercise for all years.

These calculations enabled the configuration of  Figure 1 which plots: (i) carried forward cases over total workload, and (ii) carried forward cases over new cases. From 2011-12, both trends have declined i.e. indicators have improved, revealing relatively less cases remain incomplete. Further, from ITD’s Table 1.8, it is obvious that workload had increased in 2008-09 to 2010-11 but disposal had also shown improvement. This was possible through the new Computerised Processing Centre (CPC) in Bengaluru. The positive trend has continued in recent years as carried forward cases dropped sharply in terms of both overall workload as well as new cases. In fact, the difference between the two indicators has consistently narrowed; in 2016-17 the difference was almost as small as that achieved in 2003-04. If the data are correct, all this implies that pendency or carry-over of assessment cases from one year to the next has been impressively compressed.

We next move on to the cost of income tax collection. Is it fair to expect too much improvement given the cutback in resources given to ITD, declining from 1.35 per cent in proportion of tax collection in 2001-02 to 0.62 per cent in 2018-19, among the —or probably—the lowest in the world? A ramification of this rapidly declining indicator could be surmised to be a lowering of staff morale or remaining totally above board in the face of pressure to collect revenue. Nevertheless it also must be conceded that the installation of massive information technology infrastructure in processing the bulk of tax returns may have mitigated operational costs on a running basis. However, the impact of information technology in bringing down operational staff costs is not estimated or reported. In any event, it would be helpful for the department to undertake an in-depth study of the trends in operational costs, analyse them, and undertake consequent reforms in this area. 

A related policy analysis that is needed is the manner and rationalisation of selection of assessments and their calculations. Stipulating final allowable dates for concluding various types of assessment is a good forward step but it does not necessarily yield the desired result since further query on assessment or scrutiny can be raised just before a closure date. This averts the intention of policymakers to step up assessments and limit their time.

ITD’s “taxpayer” or “effective assessee” is a person who either has filed a return of income for the relevant assessment year or in whose case tax has been deducted at source in the relevant financial year but the taxpayer has not filed the return of income. It is a useful indicator, but it does not necessarily mean all of them actually paid tax. Table 1 reveals that the number of taxpayers has grown by approximately 61 per cent from 2013-14 to 2018-19. This is a rapid increase and reflects an important recommendation of the 2014 Tax Administration Reform Commission (TARC).

Recently, the finance minister slashed the corporate income tax rate to 22 per cent (25 per cent including cesses and surcharges) and gave the option to taxpayers to opt for this low rate without incentives or avail of incentives together with their old rates. This is an innovation and unique. But there are two caveats. First, the authorities’ resilience will be tested in adhering to the two options, for incentive seekers will lobby for incentives plus the new low rate. This is to be denied. Second, no amount of tax rate reduction could produce results without buttress from tax administration. This is the area where attention should be dedicated and progress closely monitored.   

The first part was published on September 17