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Social Audit of Income – Tax Department 16 April 2013

1. Recently there were news reports regarding searches by the CBI at the residences of the officers of the Income Tax Department. Further there was a news report of Press Trust of India published in the Indian Express, Ahmadabad Edition on 17th January 2013 – under the heading “Lewd remarks: I-T Officer told to undergo psychological tests.”

2. The editorial published in the Indian Express on 26th January 2013 points out that the taxman is in urgent need of a makeover. The editorial highlights the following:

“The IT Department is a crucial player in the growth story, which would lose the plot without increasing state revenues. It has been modernized and is now capable of “360 degree profiling” of taxpayers. It can set its systems to automatically look out for transactions that fall outside established spending patterns. But the most basic step towards modernization remains to be taken. The department must be freed of political control

The taxman is in urgent need of a makeover. He is depressingly corrupt and resigned to serving as a cat’s paw to Power. Unless he changes, he cannot possibly secure his dignity, the basis of working in a modern professional culture. Without dignity, with only technical modernization, he will only be a even sharper hatchet man than ever before, and a drag on the growth story that he could have helped to power.”

3. Such news reports, Editorial and similar unreported news greatly affect the morale of the officials of the Income-tax Department although majority of the tax officials are not corrupt. Not only that such adverse news also affects the family members of the officials and those connected with the Income-tax Department.

4. The Finance Ministry referring to recent cases of raids by the Anti Corruption Bureau of CBI against tax officials, has issued an instruction to the two Tax Departments (i.e. CBDT & CBEC) asking the tax officials to discharge their duties with “utmost devotion & integrity.” The gist of the above instruction was published in The Indian Express, Ahmadabad Edition on 31st January 2013 under the heading “Honesty begins with honest taxmen.” In the instruction, the Revenue Secretary has given the following directions:

i. The officials are expected to abide by the official Rules of Conduct and there should be “zero tolerance” for malpractices and corruption.

ii. Preventive action should be taken to ward off further instances of such misconduct. Senior officials must inspect the work of their subordinates and also hold regular meetings with taxpayers, trade associations, and Chartered Accountants to get feedback on their work.

iii. The Vigilance Wings of both CBDT and CBEC have been directed to expeditiously wrap up disciplinary proceedings against charged officers. It has been pointed out that “incidents of this nature have the potential of eroding the confidence of taxpaying community and public at large in the department.”

5. There is nothing new in the above instruction. Earlier also such type of instructions have been issued. However, it had not led to any improvement in the working of the Tax Department or in its image. Even after the issue of the Instruction there have been several cases of traps and searches by the CBI at the residences of Officers of the Department. Ultimately what matters is the change in the public perception about the Department.

6. The Finance Minister while addressing the Heads of Revenue Department of Brazil, Russia, India, China, and South Africa (BRICS), said that the tax administration is faced with new challenges such as allocation of taxing rights and sharing of taxable income between countries from cross-border deals. He stated that there is a need to increase tax revenues and provide quality service to taxpayers. He said that the Government is committed to a stable tax regime, moderate tax rates, non-adversarial tax administration and a fair mechanism for dispute resolution. In the news item “Taxes will be collected in fair manner: Fin Min” published in the Indian Express, Ahmedabad Edition on 6th February 2013, the Finance Minister has said “Once the taxpayer is confident that the relationship between a taxpayer and officer is not a hostile relationship, you will find that more people have become compliant to tax laws.” But the issue is how this hostile relationship will change. We have to find out the ways by which such a change will be possible.

7. In his Budget Speech for the year 2013-2014 while presenting the Tax proposals, the Hon’ble Finance Minister has observed as under:

“120. When I took over in August, 2012, I made a statement that “clarity in tax law, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance”. That statement is the underlying theme of my tax proposals, both on the direct taxes side and on the indirect taxes side.”

“121. An emerging economy must have a tax system that reflects best global practices. I propose to set up a Tax Administration Reform Commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system.”

8. In order to minimize the incidence of misconduct and misdemeanor of the officers and to improve the relationship between a taxpayer and a taxman the first important change which is required is in the conduct of senior officers. They have to lead by example. They should ensure that the officers who come in direct contact with the taxpayers in assessment proceedings, surveys, inquiries, etc. maintain absolute integrity. Any complaint of misconduct or misdemeanor should be dealt with immediately in an effective manner. The problem will not be solved by just effecting transfers. There has to be rethinking on the transfer policy and proper guidelines should be devised for posting of the officers and these should be scrupulously followed at all levels.

9. There are various forms of inspections including Audit which verify whether the tax laws have been properly applied. There are also various grievance redressal mechanisms. However, these have failed to minimize the incidence of misconduct or misdemeanor of the officers. The training programmes relating to skill development have also not been effective in changing the attitudes of the officers. The Department therefore has not succeeded in improving its image.

10. The institution of Ombudsman has failed to deliver the objectives for which it was set up. It is therefore necessary to think of some other mechanism so as to minimize such misconduct and misdemeanor by the officers of the Tax Department. It is suggested that the Department should involve the taxpayers for suggesting steps required to be taken for changing its image. It is suggested that a “Social Audit” be conducted of the Income-tax Department every year by a Committee comprising of a representative of an institution like IIM, a top professional like a doctor (other than a tax Advocate or CA), a middle-income taxpayer and a high income taxpayer to be nominated by local trade Association/Chamber and a retired officer of the department not below the rank of Chief Commissioner / Director General. This Committee for different areas may be set up by the Zonal Member of the Board by the last week of March and its term should be valid for one financial year. To start with the Social Audit should be carried out in cities, which has the post of Ombudsman. Based on the results of such Audit this should be extended to other cities.

11. In doing the Social Audit, the aspects which should be seen by this Committee is required to be detailed in a Proforma which may be devised. For this purpose, a study may be conducted by any of the IIMs which can co-opt a senior retired officer of the Department not below the rank of Chief Commissioner / Director General. The Social Audit should be carried out during the year itself and should be completed by December. The Committee should receive the complaints of misconduct etc. from the taxpayers for which adequate facilities should be provided to them by the Cadre Controlling Chief Commissioner. As soon as any instance of misconduct or misdemeanor is brought to the notice of this Committee, it should immediately examine the same and suggest suitable remedial action to the Chief Commissioner of Income-tax (CCA). The recommendation of the Committee should be acted upon immediately. Based on the Social Audit carried out, the Committee may suggest suitable administrative measures and also suggest changes in law and procedure for the improvement of the image and working of the Department as also for strengthening the capacity of our tax system. The Committee may also highlight the areas including behavioral aspects which can be covered in training programmes conducted by the Training Institutes of Direct and Indirect taxes.

12. The above suggestions may be considered by the Tax Administration Reform Commission to be set up by the Hon’ble Finance Minister.

© 2012 Centre for Tax Awareness and Research Design and Developed by

During my 37-year-old career with Income Tax department, I moved from place to place, post to post. For me, every posting was a challenge, and at the same time an opportunity to deliver.

After my retirement as Chairman of Central Board of Direct Taxes, I was invited by various institutions and NGOs to deliver talks on tax matters. While advising taxpayers across sectors, I noticed, our vast salaried class including armed and paramilitary forces, pensioners or senior citizens, NRIs, professionals and small business establishments need the right guidance. Most taxpayers do comply with their tax obligations fully. Yet, they are not somehow relaxed and are burdened with anxieties. A large number of taxpayers are not even aware that getting tax refund on time is a basic right.

In one such meeting, a middle-aged man quizzed me why could not I give tax advice 24X7. For a moment, I had no answer. He then added that I should give tax solutions online so that he does not need to come from a remote place to attend my lecture. I thanked him for his suggestion.

For a while I was restless. Already I had got myself enrolled as a Member of the Bar Council of Delhi and as an Advocate of Delhi High Court Bar Association, thanks to my law degree from the University of Allahabad. Yet, I was not sure how I could help the vast majority of taxpayers who somehow maintain a safe distance from the taxmen. I then tossed the idea of creating a tax think-tank with some of my former colleagues and highly spirited individuals. All of us immediately agreed on one count: millions of Indian taxpayers expect to access tailor-made tax research materials and seek guidance from those who have been parts of the tax machinery for decades.

That is how CTAR was born. So, be a part of our passionate journey to explain tax laws and rules in simpler words. Just drop us a few lines on any query related to direct and indirect tax or FEMA. We are at your assistance. We also look forward to hearing your experiences while dealing with the system.