The Future of Tax Reform is Based on Trust and Tech

Context: Prime Minister’s call for belief in people’s honesty and fundamentally reforming the tax system through “Transparent Taxation – Honouring the Honest” (TTHH) Scheme reflects the government’s vision of a new governance model.

Features of TTHH Scheme:

• Building a future of tax reform: based on 3T - Trust, Transparency and Technology.
• Building Trust: Trust issues exist between the taxpayers and the state. For E.g. one might evade taxation if he thinks the government is unable to utilize the taxes paid as per one’s interests.
• By Building a Charter: The tax department expects ????
• Honesty,
• Accuracy of calculations and timely payments, 
• Respecting everyone’s privacy,
• Taking decisions within specified time frames, 
• Offering redressal mechanisms.
• Faceless Assessment and Faceless Appeals: By eliminating frequent personal interaction between taxpayers and the tax department, FAS significantly minimizes malfeasance.
• It saves precious time and resources of the taxpayers.
• Use of Technology: Eliminating bias through automation 

• Tackling quid pro quo: 

• Although e-assessments were introduced some years ago, these were done by the jurisdictional tax authority and the identity of the officer was known to the taxpayer.
• The Faceless e-Assessment Scheme (FAS) uses artificial intelligence for automated, randomized allocation of cases, such that the identity of the officer is not known to the taxpayer.
• Ensuring Transparency: The scheme, which is system-driven and provides an audit trail, is unbiased and transparent.
• For E.g. The formal process of giving show- cause notice through the National e-assessment Centre (NEC) ensures the taxpayer has sufficient time to provide information.
• Promoting Efficiency: 
• Reduced Tax litigations: Tax authorities now conclude assessments based on documents on record and binding judicial precedents which makes the process scientific.
• Division of Tax authority: between assessment, verification, technical and review units will lead to functional specialization and efficient use of resources and quality assessments.
• Use of Collective Wisdom: More than 3,100 tax personnel are already engaged in implementing FAS.

Way Forward:

• Simplifying the tax collection: There is a perception of overkill on the part of authorities in their zest to maximize tax collections. Tax collections can be simplified as ????
• For E.g. simplifying the multiple tax brackets and exemption present therein to reduce the work of the tax officials.
• Provision of pre-filled forms, enabled by e-capture of information through linkages with various other databases.
• Clarity is required on how transfer-pricing assessments of residents will be conducted.
• Ensuring Effective Communication: There should be quality and clarity in communication from taxpayers to avoid any misunderstanding and unnecessary litigation
• Small taxpayers will need to equip themselves to make use of the FAS.
• This will allow a contextual framework of medical procedures rather than traditional ailing coding standards that are currently been used around the world.

• Capacity Building and Robust Systems: given the number of taxpayers and their detailed online submissions.