 "Why disquiet is growing at tax offices")
In a corner of the busy Kasturba Gandhi Marg in New Delhi is a plot of land which is meant to become India's tax headquarters. The plan for an integrated office to house both the direct and indirect tax administration of the country was cleared way back in 2008.
Pranab Mukherjee, then finance minister, laid the foundation of the building next year but the money for the project was cleared by the Cabinet only four years later in September 2013. The building was supposed to come up in three-and-a-half years; three years later, the project is nowhere near completion.
The project fairly sums up the reasons why the two tax departments feel sidelined and have demanded better treatment as they go about their vital task of collecting taxes for the government. That they have been instrumental in bringing about the recent tax reform has added to their angst.
For the Goods and Services Tax, which has redrawn the tax map of the country, officers of the Indian Customs, Excise and Services-the indirect tax arm of the government-negotiated, cajoled and brought together all the state governments after years of effort.
Earlier this year, the direct tax arm of the government, the Indian Revenue Service, had notched up a similar victory: it effectively blocked a conduit for tax evasion, the so called Mauritius route. The route was the most preferred channel for investments into India for two decades and because of the tax arbitrage was a favourite for Indians round-tripping their black money back into the country.
Yet, instead of basking in the glory, a segment of IRS officers has courted trouble with the government and has also created trouble for those in the indirect tax wing who were planning to draw attention to the disquiet.
In the last week of July, IRS officers based in Mumbai held an incendiary meeting where they criticised the alleged interference in "operational matters" by the department of revenue. The officers passed a resolution to say the interference has "hurt the morale" of officers. For good measure, the resolution was forwarded to the finance ministry and the prime minister's office.
In the finance ministry, the department of revenue is headed by an IAS officer, the revenue secretary, under whom the two tax wings operate.
There were two triggers for the controversy. Revenue Secretary Hasmukh Adhia had begun to attend the weekly meeting that senior IRS officers hold among themselves to set their agenda for the week ahead. This was read by the officers as "interference".
The second was more humdrum in nature. Tax officials at times resort to shortcuts to meet collection targets, particularly at the end of the financial year. In March, there were reports that the State Bank of India had been asked to cough up tax of close to Rs 10,000 crore that was reversed as soon as the year was over, in April.
The other wings of the ministry had not taken kindly to this. A subsequent transfer order on some of the concerned officers was linked to this episode.
None of them per se were, however, good enough reasons for the unprecedented resolution. Tax officials have for decades practised the art of leaning on companies to show inflated tax receipts that are dropped once the March deadline gets over. In fact, as a measure to curb the practice, the finance ministry's budget wing had several years earlier cut the interest rates payable on such tax returns.
Similarly, there was little reason for taking umbrage at the presence of the revenue secretary at the weekly meetings, since the meetings by themselves have till recently been fairly routine.
Matters have got complicated because of the larger changes taking place in the Indian economy and their political fallout.
Cracking down on tax evasion
One of the key election promises of the Narendra Modi government was that it will go after tax defaulters in a big way. The pledge was also in tune with the emerging global coherence on the theme to stamp out tax evasion or even tax arrangements that lower revenue for governments.
The first decision taken by the National Democratic Alliance government was to set up a special investigation team to assist the Supreme Court against tax evasion. In the past two years, while the government has had some key success in this quest, there is a perception that a lot more can be done.
Consequently, the tax policy wing of the government, run by IAS officers, has begun to take a keen interest in tax administration, run by the IRS and the ICE&S officers.
At a practical level, this has got exacerbated due to the way seniority is ordered amongst the government services: IAS officers enjoy two-year seniority in the services even when they and IRS officers are inducted in the same year.
Till the time the IAS officers let the tax administration run on autopilot this did not matter. But as the urgency of tax issues now dominates policy matters in the finance ministry, these differences have come to the surface.
In tune with the zeal to reform tax administration, just before the budget session of Parliament, the government passed an order merging the demands for grants of the two boards, effectively making their administrative roles unified.
It was followed by Finance Minister Arun Jaitley addressing a joint session of the two boards where their annual targets were set. Officials of the two boards have read the two moves as a precursor to curb their independence.
All the elements for build-up of stress were consequently in place. Also, the government, which is extremely reticent about officers making public any service issue, felt bringing the differences out in the open was "insubordination", officialese for a revolt.
In his meetings with secretaries of various departments, Prime Minister Modi has often made his displeasure clear about officers going out on a limb on real or perceived injustice.
The government has held that the way to ensure officers do not get hauled up for decisions taken in the course of their work is to ensure they do not criticise each other in public. Such differences had contributed to a sense of policy paralysis in the previous United Progressive Alliance government that, in turn, hurt the economy, the NDA government feels.
No wonder, then, as soon as the news became public, Jaitley gave the direct tax officials a rap on their knuckles. It was effective. A release issued by the IRS Association within days "placed on record its immense respect for the Hon'ble Finance Minister and the Government, and decided to put the protest in abeyance and suspended forthwith."
Seniority matters
But the issue of seniority remains a sore point.
The combined civil service officers association (due to their numerical superiority, the IRS officers dominate this association) throughout last year objected to the intrinsic seniority of IAS officers. The association had aggressively petitioned the Seventh Pay Commission to rectify it.
In the three-member commission, while the two non-IAS members had supported the demand, it was retained as IAS officers opposed its eclipse. All the members wrote dissent notes on the topic.
The committee of secretaries formed to examine the demand have decided to let the current arrangements continue. It has not gone down well with the taxman.
Jayant Misra, general secretary of the IRS Officers' Association, says the disquiet among his Mumbai brethren is because of this angst. "The (finance minister) may kindly ensure that (IRS offices) be allowed to administer the direct tax policies of the government".
But Sanjay Bhoosreddy, secretary of the IAS Officers Association, says this is impractical. "Can you envisage a situation in any mature democracy where the policy is made and administered by the same group of men? Can the police force be responsible for running law and order and also decide the law?"
While Misra and members of the other central civil services have also linked this to the difference in pay and seniority, Bhoosreddy says the differences serve an administrative requirement. He claims the Pay Commission went beyond its brief in even considering the demand as this was the remit of the successive administrative reforms commissions.
The larger issue raised by the chain of events is whether the differences would strain the working arrangements among the two largest set of officers running the government of India.
As it is, the number of officers posted to the various ministries is awfully small. A study by the Seventh Pay Commission shows there are only 30,000 officers across all ministries in India. Adding those posted in the field offices like the tax departments, environment and other such units will still keep their numbers short of 100,000.
Differences within such a small bunch of people tasked with decisions on running the economy of more than a billion people can be a huge setback for the government. The implications are larger than not having built a tax headquarters till now.
