Government’s New Transparent Tax Platform

Prime Minister Narendra Modi along with finance minister Nirmala Sitharaman, launched the faceless e-assessment scheme (FAS), faceless appeals and the taxpayers’ charter that are transformational initiatives. They will bring greater efficiency, transparency and accountability in tax administration. The efforts towards reforming the tax administration started a few years ago with the introduction of e-assessments conducted over email and through a portal. The new FAS, launched will use artificial intelligence for automated, randomised allocation of cases such that the identity of the tax official is not known to the taxpayer. It completely changes the traditional concept of territorial jurisdiction and makes it dynamic, so that an assessment of a taxpayer based in Mumbai can be concluded anonymously by a tax authority based in Kolkata. This is a novel mechanism not found in any of the known jurisdictions and can become a global benchmark for compliance verification. By eliminating frequent personal interaction between taxpayers and the tax department, FAS significantly minimises malfeasance. Tax authorities now conclude assessments based on the documents on record and binding judicial precedents. This makes the process more scientific and avoids undesirable outcomes for either parties. Moreover, the scheme’s review process minimises instances of high-pitched and unreasonable additions. Even as the government is working towards addressing the potential challenges, a few areas will be critical to realise the full benefit of the new scheme. Key among them is the voluminous online submission and explanation of intricacies of business models. It will require high quality and clarity in communication on behalf of the taxpayers to avoid any misunderstanding and unnecessary litigation. Small taxpayers, particularly, will need to equip themselves to make use of the FAS. Secondly, given the number of taxpayers and their detailed online submissions, the digital process under the scheme will need huge capacity-building and a robust systems support to drive it. Although assessments of non-residents with international charge will currently not be faceless, clarity is required on how transfer-pricing assessments of residents, generally carried out by international charge, will be conducted. With the taxpayers’ charter formally in place, India joins countries like Australia, Canada, France, New-Zealand, South Africa and the United States in providing a fair, transparent and efficient tax system.