Why Taxation Authorities in India need a New Administrative Framework?

Ever since the inception of taxation system, the world has witnessed a myriad of instances related to tax evasions.  Although the highly distinguished US Supreme Court Justice, Late Oliver Wendell Holmes Jr., once said, “Taxes are what we pay for civilized society,” nonetheless most of the taxpayers worldwide have an inherent characteristic of looking out for loopholes in taxation framework that can help them dodge the entire administrative system.  Their Indian counterparts are also influenced with the same deceitful passion, and therefore, taxation authorities in India are in portentous need of a new administrative framework.

One cannot question the fact that success of any taxation system is unequivocally reliant on the administrative and regulatory capacity of the jurisdiction.  As India has the federal fiscal structure, taxation authorities in the country have consistently been citing concerns related to how various compliance monitoring functions should be streamlined so as to maintain harmonised communication between all the authorities.  The current indirect taxation system in the country has been unable to maintain strategic coordination between the Centre and the States/Union territories, and this has been a prime concern for ages.  However, with the Parliament showing green signal to the GST Bill, it is quite clear that the overall tax administrative framework in the country would undergo a massive overhaul.

Though there are a plethora of whys and wherefores of re-structuring the tax administrative framework in India, this article sheds light on four major loopholes of the existing system.

Lack of coordination:  Taxation authorities in India have to face numerous unanticipated complications owing to the absence of strategic coordination with each other.  Due to the federal fiscal system of the nation, it indeed becomes a perplexing task for the authorities to establish direct communication with various regulatory bodies of the Centre and the States.  Lack of coordination between authorities becomes nothing less than an exploitable point for all those who are maligned with unethical intentions of evading tax.  Hence, it can be deduced that a new administrative framework is the need of the hour.

Corruption:  There are no two doubts about the harsh truth that corruption exists across all sectors, jurisdictions, and departments in India.  Various experts have opined that the current taxation framework and administrative system have been prime reasons behind the existence of such deep-rooted sleaze in the country.  As various commercial activities attract various rates of taxes in varied jurisdictions, it actually opens the room for corruption across the country.  On the flipside, the uniform GST rates across India from July 1st would play substantial role in eliminating the scope of corruption.

Administrative inefficiency:  Before questioning the efficiency of taxation authorities, we must acknowledge the fact that lack of cutting-edge technologies has actually made it difficult for the authorities to ensure immaculate management and monitoring of compliance activities.  As most of the vital functions associated with tax compliance in India (such as return filing, payment, refund claims, and so on) are not automated currently, it is so obvious that regulatory bodies would have difficult time managing and monitoring those functions competently.  As each state is enthusiastically passing its respective GST Bill in State Assemblies, it would become much more convenient for taxation authorities to keep a close eye on all automated compliance related functions.

Lack of built-in elasticity:  This is yet another major factor that might raise the eyebrows of contemporary economists.  The income from taxation in India does not surge in accordance with the rise in national income.  India has witnessed this unanticipated trend during the last few years, and if this is not checked as immediately as possible, then it might become a point of grave concern in the near future.  Herein, standard GST rates, automation of compliance related activities, and introduction of GST compliance rating concept can actually help the country maintain unswerving tax-income ratio.

In a nutshell:  These are the four major loopholes of the existing taxation system in India, and therefore, one must advocate the need of a new administrative framework for taxation authorities in India.

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