Digitization is proving to be a major partner for the Modi Government. Aadhaar based benefit delivery, ably supported by technology has proved beneficial in cutting leakages. As per the Finance Secretary to the Government of India, the Country saved a whooping 34,000 Crores due to Aadhaar linking. Apart from this, Direct Benefit Transfer (DBT) schemes have further cut out 3.34 crore duplicate consumers under PaHAL (use of Aadhaar for claiming LPG subsidy) and a further 2.33 crore ration cards saving a whooping 50,000 crores is subsidies.

It is our general tendency to observe events in isolation and not as a part of a bigger plan or intent. Which is why, perhaps, we saw the opposition and the ‘neutrals’ who act like the mindless opposition, criticise each step in hyperboles. From demonetization to Aadhaar linking, every step was criticised as a stand alone reform rather than a part of the larger process to cleanse the entire economy. There seems to be substantial confusion as to why everything is going digital and Aadhaar based and ‘experts’ have only been able to provide hollow rhetoric in their attempt to criticise. Their standard response being that the state is trying to play the ‘big brother’. The aim of any government is to collect revenue and spend on activities like infrastructure, railways, defence, subsidies etc. It is towards the realisation of such goals, that these seemingly isolated steps come together to help the government.

It is a fact that India’s tax-to-GDP ratio is below the emerging market economies (EME) and OECD (Organisation for Economic cooperation and Development) averages of about 21% and 34% respectively. Taxation is the key to long-term political and economic development. The Finance Minister himself has expressed the need to expand the tax base to achieve desired revenue levels. Hence it is important to know and understand how the Government intends to achieve the same.

GST and Demonetisation:

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As explained in my previous article, demonetisation has given the government a wealth of information. One may safely assume that every old demonetised currency note today has a specific address and identity matched with Aadhaar (as its now compulsory to link bank account and Aadhaar). Similarly as explained in this article reverse charge mechanism under GST is going to expand the tax base further. This is already evident from the fact that many new businesses (previously unregistered) have registered freshly under GST.

All this data is being mined to generate automated notices seeking further explanations and information from the tax payers.

Project Insight:

Every document or Income Tax return filed with the department is an addition to the wealth of data. Few years back Central Board of Direct taxes decided to digitize every piece of data they had and match it with the respective PAN of the assessees To effectively process this data, “Project Insight” was launched. The basic tenets of this project are to collect information on a “Non-Intrusive Basis” to improve tax compliance and effective usage of information in administration of taxes.

A good tax system should be

Fair Adequate Simple Transparent Should ensure administrative ease

One of the most important features of the new system (the integrated platform under ‘Project Insight’) is that it will mine Social Media accounts of people and match the same with their income levels and send automated notices via email and letters in case of discrepancies.

What one might wonder whether such a feature might infringe upon a citizen’s right to privacy, which has now been upheld by the court as a fundamental right.

Sometime back Government of India had signed a pact with the Swiss government for sharing of information. Project Insight will also be leveraged for implementation of Foreign Account Tax Compliance Act Inter Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS).

Just like the Centralised Processing Center (CPC) for IT Returns, a new Compliance Management Centralized Processing Centre (CMCPC) will also be setup as part of the Project for handling preliminary verification, campaign management, generation of bulk letters/notices and follow-up.

The department hopes that the new system shall ensure voluntary compliance and enable taxpayers to resolve simple compliance related issues online, without visiting the Income tax office. This should ensure minimal interface between the assessee and the Department . A common complaint across the spectrum is that department officials harass tax payers. Minimal interface would ensure lesser harassment and corruption.

As per reports Project Insight “will integrate enterprise data warehouse, data mining, web mining, predictive modelling, data exchange, master data management, centralised processing, compliance management and case analytics capabilities.”

In the first phase of this project, financial data like credit card bills, investment portfolios and bank statements will be moved to a centralised digital system.

The second phase will process this data and any mismatch will lead to notices being issued. The plan is to launch Stage 2 in December 2017.

Will this technological advancement and deployment ensure that the “good qualities” of tax administration are achieved? Only time will tell but as of now this seems to be a big step in the right direction.

Benami Law and the Way Forward

I have been a strong advocate of both demonetisation as well as GST. According to me both these reforms shall usher in a wave of unprecedented change in the long run. With the passage of stringent laws like Benami Act, the department needed this technological tool to make “sense” of the data that is with them. It is widely estimated that similar projects in other jurisdictions have saved billions of dollars for the governments. Will they do the same for us?

Tax Administration Reform Commission (TARC) under the chairmanship of Dr.Parthasarathi Shome, had recommended extensive use of Information Technology in the administration tax laws and governance of tax system in India.

GST, Demonetisation, Aadhaar PAN Linking, Aadhaar- Bank account linking, data mining using project insight is going to change the entire scenario. The “grid” is being completed. We are being ushered into a new era where tax evasion is going to be difficult and costly. Citizenry need to realise that tax compliance is one of the prime responsibilities of a citizen and it is perhaps a marker of a developed economy where evasion becomes increasingly difficult and costly.

While concerns regarding privacy and need for a law are genuine, we have seen excessive intellectualisation and fear mongering by the usual left liberal circles regarding Aadhaar and its seeding into various services. Every loophole plugged and tax payer’s money saved, directly means that much lesser funds go into the pockets of the corrupt. I see no reason why the old, leaky system needs to continue. While the debate around privacy might in itself be hypocritical considering we live in times where globally, data is currency whether Aadhaar is taken into consideration or not. One may even wonder if privacy concerns are being used as a veil behind which an important reform is being scuttled by manipulating public sentiment with tales of the ‘big brother’. We have seen a political opposition bereft of issues and an establishment, independent of the government, working very hard to derail the progress of the nation. A ‘cabal’, so to speak, that insists on cutting off the nose, to spite the face. Perhaps it’s time they realise that India’s time has come. The path of progress might be laden with thorns, but a valley of roses await.