Please outsource it

Some of Mr Chidambaram's proposals for plugging loopholes and tax evasion, as outlined in his latest Budget, have come in for their share of criticism. One measure that has not received much attention so far is a little change in the rules that will affect millions of taxpayers.

The change reads thus: "The prescribed income-tax authority or the person authorized by such authority referred to in sub-section (3) of Section 200, shall, within the prescribed time after the end of each financial year beginning on or after the 1st day of April, 2005, prepare and deliver to every person from whose income the tax has been deducted or in respect of whose income the tax has been paid, a statement in the prescribed form specifying the amount of tax deducted or paid and other such particulars as may be prescribed."

What this piece of legalese means is simple. From next year, instead of your employer giving you your certificate of tax deducted at source (or TDS), it is the income tax department (or someone designated by it) who will provide this. The idea came from the Kelkar committee, which said that employers complained that TDS and the accompanying certificates cost them a great deal.

The report said: "Their complaint was essentially against the high private cost to discharge what was essentially a government function. In a recent study on compliance cost estimates of income tax commissioned by the Planning Commission, such private compliance costs for TDS have been estimated to be as high as 11.8 per cent of revenues."

It went on to say that the compliance costs were regressive, so that smaller employers bore a higher cost. So it recommended that until the new tax information network had been fully implemented, these smaller employers (as defined under Clause A or B of Section 44AB) would not have to deduct TDS, and therefore not have to shoulder the costs of deducting, depositing and providing certificates.

Fair enough, anyone might say, but what is not fair is to ask the taxpayer to get his TDS certificate from the income tax department. Everyone knows how rapacious the department is; how illegal gratification is sought at every point of contact.

What if a certificate sent out (or allegedly sent out) is lost in the mail, or gets delayed? The tax payer will then queue up to ask for a second certificate, which may or may not be given""and who knows at what cost. The imagination boggles at the thought of the queues and the corruption.

After all, the lower bureaucracy used to charge speed money even for giving out the permanent account numbers (or PANs). One can almost see it rubbing its hands in glee at the prospect of the lucre that lies ahead.

What makes this particular change especially galling is that the Kelkar committee had repeatedly said that it was necessary "to minimize the interface between the taxpayer and tax authorities."

Instead, this will now increase for the many millions of tax payers who have no income to report other than their salaries. The only way out is to make it compulsory for the income tax department to outsource the function. There will be a price to be paid by the government, but it will be the government that pays it, not the taxpayer.