TAX REFORMS.... OR A FARCE...

TIOL - COB( WEB) - 486
FEBRUARY 04, 2016 

By Shailendra Kumar, Editor

AFTER almost 22 months since the First Tax Administration Reform Commission (TARC) Report was submitted to the Union Finance Minister, Mr Arun Jaitley, the North Block babudom sprang two surprises last Tuesday. Even if we count it from the last Budget Day when Mr Arun Jaitley in his Budget Speech (Para 117) stated that the TARC recommendations were in advanced stage of examination, it took more than 11 months for him to design the latest 'surprises'. I am sure it may have failed to surprise many tax administration analysts as they may not see any foresighted element of organisational reform in it but this was perhaps the only easy leeway for Mr Jaitley to ward off 'inhouse as well as outside' pressure demanding implementation of the TARC recommendations.

What were the key recommendations? - a) Abolition of the post of Revenue Secretary and 2) Creation of Governing Council; Tax Council and Tax Policy & Analysis Unit.

While talking about the position of the Revenue Secretary who holds the numero uno position in the Department of Revenue, the TARC Report observed, "... he is likely to have little experience or background in tax administration at the national level and little familiarity with tax, including international tax, issues that are increasingly taking centre stage in emerging global challenges in taxation. Yet he is the final signatory on decisions on tax policy and administration matters prior to their arrival for the Finance Minister’s consideration." The Report further notes, "... this is not the first time that a government committee has found that the post of Revenue Secretary is superfluous. It was considered by the Tax Reforms Committee, 1992, chaired by Prof. Raja J. Chelliah ..."

The TARC Report further underlines that the post of Revenue Secretary does not merit presence in a modern tax administration. Instead, a Governing Council should be introduced with the chairs of the Boards alternating as its chairperson. In this manner, the TARC adds to the tenor of the Chelliah Committee in that India should benchmark itself with modernizing tax administrations by not only removing the position of Revenue Secretary but by replacing it with a Governing Council that should include members from the non-government sector as well. The Report notes that Governing Council will oversee the functioning of the two Boards and approve broad strategies to be adopted by the tax administration to fulfill the objective of a more coordinated approach to the administration of the two taxes – direct and indirect – and create a structure which is independent. Such a coordinated approach also improves the focus of the tax administration towards its customers or taxpayers.

How scornfully both the recommendations of the TARC were treated by the Government can be seen from the contours of the two 'surprises'. The PIB Release states that considering the TARC recommendations, the Government has created a Tax Policy Research Unit (TPRU) and a Tax Policy Council (TPC). First, there is no notification or Office Order or Office Memo in this regard in the public domain. The only document available for reference is the PIB Press Release. Secondly, why were the key recommendations not accepted by the Government is not yet known. If there is a valid or legitimate reason for rejection of TARC key recommendations the social media-friendly Government should share it. The Nation has a right to know why the PMO or the North Block moved miles away from the key recommendations?

While showing contempt to the first recommendation of the Shome Panel, the Government has created a Tax Policy Research Unit under the tutelage of the Revenue Secretary. Strange, strange & strange!! If the Government is so logically convinced that the post of Revenue Secretary held by a generalist is so indispensable to our present system where was the need to set up a Reform Commission? Even if it was set up by the previous Government, it was a commission of domain experts whose observations did merit proper and reasoned rejection.

Going by the configuration of the new hybrid apparatus it smacks of perpetuation of 'extreme administrative feudalism' being practised by one particular Service in the Government of India. At a time when the global trend is to move towards specialists in every minute domain, the NDA Government continues to rest on the shoulders of the generalist Service which evidently believes in 'territorial expansionism' rather than allowing the specialists to operate in their own technical domains. It is shocking that this is how a modern Government intends to run modern tax administration in India. Ideally, in today's time, every Government should reduce the space given to generalists and involve more and more of specialists. No doubt, the generalists have a role to play but certainly not in the domain of technicalities.

As per the Press Release, the TPRU shall comprise of officers from both the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) as well as economists, statisticians, operational researchers & legal experts. Member (L&V), CBDT and Member (Budget), CBEC will be the link officer between TPRU and CBDT and CBEC. The unit will be headed by an officer of the level of Chief Commissioner at functional level alternatively from CBDT and CBEC for a fixed tenure, who will directly report to Revenue Secretary. Here, both the Chairmen have clearly been bypassed. From this information it can be seemingly inferred that the Government has not dismantled or merged the existing TRU and TPL in the new apparatus. The TPRU is the new body which will do research and analysis independently. Certain issues of research might be referred to it by both the Boards and its findings will enable the Revenue Secretary and the Finance Minister to have a holistic picture of the tax world.

The fact that even both the Revenue Boards are often seen struggling to find willing officers to work with them, where will the TPRU find 20 officers for its research-oriented activities? Secondly, will the Government be able to hire economists & other professionals at the market rate? If yes, can the Government discriminate between its own full-time employees and those on contract? Although nothing concrete can be said at this stage but my fear is that such a body may not last for long and may fall in disuse if it fails to provide meaningful research. In such a scenario, it may be reduced to a status where it becomes a haven for desperate deputationists looking for a slot in Delhi for their personal reasons rather than organisational interests. There are too many such Directorates in the Government today which qualify as 'placid' entities.

Let's now take a look at the Tax Policy Council. The TPC will look at all the research findings coming from Tax Policy Research (TPRU) Unit and suggest broad policy measures for taxation. The Council will be advisory in nature, which will help the Government in identifying key policy decisions for taxation. This Council has FIVE generalist Secretaries to the Govt of India. And both the heads of the Revenue Boards who could actually contribute to the deliberations on technical issues are going to be SPECIAL INVITEES!! The topic of discussion at every meeting of the TPC headed by the Finance Minister would be taxation but without a tax policy expert.

In this backdrop, it may be pertinent to recall how one particular Revenue Service was recently singled out for public humiliation by none other than the Prime Minister himself! While chairing his ninth interaction through PRAGATI — the ICT-based, multi-modal platform for Pro-Active Governance and Timely Implementation, the PM is believed to have told the Chairman of the Revenue Board that there are too many complaints against his officers and the 'chhavi' (image) of his Department is not good. The PM may be right in his observation but this does not call for public humiliation of an institutionalised service which is serving the cause of the Exchequer for several decades. There is no Government Department or a Service whose members have not been arrested on corruption charges? If one goes by the latest data of the Directorate of Public Grievances, the maximum complaints have been lodged against the EPFO, Railways, Telecommunication, Banking & Insurance. Does it mean that all the officers in these sectors are equally corrupt and their 'chhavi' is bad? If it is so, does it not amount to failure of the Government which cannot abdicate its public accountability by merely humiliating heads of one or two Services?

Going by the growing consolidation of administrative space by the one particular All India Service in the NDA Government it may appear to many Govt watchers that a subtle conspiracy is being hatched against specialist services and that is how the top layer in the Government has been publicly assailing its own technical arms and increasingly leaning on generalists to rule or ruin the country. Let's hope it is not true and the Government takes immediate corrective measures to alter the growing public perception about the ruthless consolidation of administrative space by one particular All India Service. But, if it is true, the trade and industry should be gearing up to witness even the proposed GST system being implemented by the generalists !!

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