Make tax officials accountable

Tax officials still view most taxpayers as evaders. Moreover, the tax department lacks accountability, as evidenced by the delayed refund.

The department has a perverse incentive to raise unreasonable demands since the one-fifth tax collected counts towards official’s collection targets. Delays benefit the department, even it the taxpayer eventually wins.

Securing a refund with a mere half per cent simple interest per month (in contrast to the one per cent simple interest charged for delays by taxpayers) required persistent follow-ups and can took five years on more.

The transfer of the first appeal process to the National Faceless Appellate Center in 2020 has only worsened delays, with few appeals resolved since then.

The government has introduced a Taxpayers’ Charter in the Income-Tax Act, but it lacks teeth.

Taxpayers were less vocal when evasion was rampant. But the formalisation of the economy and the Tax Information Network have closed most evasion routes. Earlier it was the salaried, but increasingly self-employed taxpayers are also compliant.

With nothing to hide, taxpayers are more vocal, as witnessed in the debate over withdrawing indexation benefits for long-term capital gains. The government is also paying attention, as is evident from the partial rollback of the provision.

The proposed tax code simplification in Budget offers a chance to instill accountability in the tax department. A model for this exists in the Public Service Guarantee Accts (PSGA) adopted by Indian states. PSGAs set time limits for services like issuing certificates, ration cards, and driving license. They establish an appeal process and hold officials accountable for delays, imposing fines on them and compensating the affected citizens.

Truth be told, taxpayers hold little political influence, as they are just two crore in a population of 140 crore. However, they belong to the middle class and are valued opinion-makers.

Their perception of the tax department’s fairness shapes their perception of the government. The government should remember this when implementing the Taxpayers’ Charter which it had the foresight to enact.