Budget 2024: How can Modi govt further give filip to tax administration using digital initiatives?


A steady transformation has been happening at India’s tax administration over the last 10 years, preparing India for its ‘Amrit Kaal’. This is best reflected through the broadening tax base and increasing collection. For direct taxes, the number of income tax returns filed (including revised returns) has increased by ~105% between FY 2013-14 and FY 2022-23 and the net direct tax collection is set to breach Rs 19 lakh crore in FY 2023-24 (~3 times the value in FY 2013-14). On the indirect tax front, over the last 6 years the number of entities registered to pay GST have doubled to 1.4 crore, while GST collections have been steadily improving with the highest collection for a month being recorded in April 2023 at INR 1.87 lakh crore.


Digital Initiatives: Core of the reforms


While several legislative and administrative initiatives have spearheaded this dynamic transformation exercise, the aggressive use of digital technologies to improve transparency, simplify processes to boost efficiency and citizen experiences, cannot be understated. Pivoted on critical national digital infrastructures, including the improved income tax portal (TIN 2.0, pre-filling of ITRs, and updated returns, PAN-Aadhaar interoperability etc.), Goods and Services Tax Network (GSTN: GST Portal, E-way bill system, E-Invoice System, TINXSYS etc.) Indian Customs Electronic Gateway (ICEGATE 2.0) etc., the Government of India has rolled out several state-of-the-art digital services and communication channels to enable a tax administrative culture and ecosystem that is taxpayer centric.


The success of the initiatives is a modern day ode to the adage, “the numbers speak for themselves”. For instance, since its inception, more than 425 crore e-way bills have been generated by the E-Way bill system; close to 5 lakh GSTINs have been generating Invoice Reference Numbers (IRN) through the e-invoice system with the number of IRNs crossing 18 lakh in May 2023. In case of direct taxes, the new income tax portal processed ~23% of ITRs for AY 2023-24 in a single day and the average processing time has been reduced to 10 days.


What’s next?


It is beyond doubt that sustained efforts towards digitisation have created a mature digital ecosystem which now begs the question, what’s next?


To assess and define the digital maturity required for tax administration in the age of rapid digitisation, OECD has laid down a possible vision for the future state of tax administration as “Tax Administration 3.0”. It identifies six core building blocks with the potential to remove structural limitations of current systems and move into integrating taxation into natural/native systems used by taxpayers, thereby ensuring compliance by design, seamless citizen experience and removing single points of failures. In other words, the OECD prescription for the future of tax administration is to design systems for a “world of driverless cars, from the current world of human-driven cars”.


A cursory mapping of the digital initiatives undertaken by the Government of India, to the six core building blocks prescribed by the OECD, indicates that most of the building blocks have generally already been laid down in India, other than distribution of tax laws in administrable formats to allow taxpayers to integrate tax rules with their own systems. Having most of the core building blocks, it is imperative to design and roll out digital systems and initiatives to move towards the future. While the transition will have multiple initiatives, there are two that have the potential to kick-start such a transformation roadmap.


SAT-F: Improved efficiency


A system of taxation through natural/native systems and compliance by design, requires standardisation and automation of data sharing by taxpayers with tax administrators. At present, data extraction from business systems for assessments by taxpayers and its validation by tax administrators, is often manual which opens up possibilities for inadvertent errors, and delays/inconsistencies in reporting and data verification. It may be feasible to consider introduction of Standard Audit File for Tax (SAF-T), an OECD standard that has been adopted by many European countries, for both, direct and indirect taxes. SAF-T involves creating a data file containing business accounting transactions in a standardised format. This benefits taxpayers as the process of data submission to tax authorities can be automated. From the tax administration perspective, a SAF-T file could significantly enhance and automate the tax audit process on a near real-time basis, with least interference for taxpayers.


Unified Digital Infrastructure for One-Stop Filing


Also, mandated by different legislations viz., company law, foreign exchange regulations, direct and indirect taxation laws, taxpayers have to do multiple filings that carry similar type of data. For instance, financial data (balance sheet and profit and loss statements) is required for filings under company law as well as for ITR Forms; GST data is available in GST returns but is also required to be reported in clause 44 of Form 3CD (Tax Audit Report). Apart from creating duplicity of efforts for taxpayers, this also prevents effective interoperability between tax administration and regulatory enforcement which needs to be removed for a seamless and delightful citizen experience. Hence, a unified digital infrastructure that can enable automated filings can bring down the compliance burden and dismantle information silos within the administrative ecosystem.


Timely roll-out of these two initiatives can speed up the pace of digitisation and pave the way for the next generation of tax administration.


Source- Economictimes

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