We have seen a tectonic shift in the way tax administration has been
revolutionised in India adapting technology to make it easier to deliver
service to citizens. The tax department in India has been at the forefront to
rally measures which make the taxpayer service come alive through technology,
eliminating the need for physical interactions, to improve transparency,
facilitate data sharing across government arms (SEBI, MCA, RBI), to track
taxpayer behaviour and make precise audit interventions.
With e-invoicing now a reality and expected to go live in the calendar
year 2020, GST audits round the corner, approach to stimulate audits and
show-causes based on taxpayer profiling and approach to seamlessly analyse
information shared to it across the spectrum using specialised algorithms, we
will see the government strike its first goal and put the taxpayer on the back
foot with compelling facts it cannot ignore and counter facts with facts.
The key to the
future is to become proactive in terms of embracing technology rather than
being reactive.
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REACTIVE
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PROACTIVE
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Data is maintained locally
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Data is maintained in a centralised manner
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Non-standard process
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Standardised process
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Work is mostly manual
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Work is automated
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No analytics involved
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Involves usage of analytics
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Increased amount of risk
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Amount of risk exposure is less
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Tax authorities
across the world are increasingly adopting technology to make it easier for the
assessees to make payment of taxes and to fulfil compliances. This requires the
tax professionals and the assessees to become even more adept with the technology,
because developments in implementation of technology in the tax function are
moving at a much faster pace.
To deep-dive into
this ocean, I have shared some global experiences which articulate how tax
authorities across the world are competing with one another to better their
taxpayer services and target their audits:
TECHNOLOGY
FOR TAXPAYERS – GLOBAL EXPERIENCES1, 2
ASSESSMENT PROCESS
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PARTICULARS
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SINGAPORE
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UK
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US
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INDIA
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Is faceless assessment
(E-assessment) mandatory?
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For the returns filed
electronically, assessments happen via the online
myTax portal
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No, traditional way of
assessment
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No, traditional way of
assessment
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YES, except in the following
cases:
• Taxpayers not having
E-filing account / PAN
• Administrative difficulties
• Extraordinary
circumstances
Personal hearing through VC
– post draft order
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Assessment process
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• Tax Bills (notices of
assessment) are available in the myTax Portal of the IRAS. IRAS sends
tax bills in batches, some taxpayers receive it earlier than others
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• HM Revenue and Customs
(HMRC) will write or phone to say what they want to check; if an
accountant
is used, then
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• The IRS notifies the
assessee via mail and the audit is managed either by mail or
in-person interview
• The interview
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• The E-assessment process
in India has been illustrated in detail in the article below
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• If the tax bill is not
available in the myTax Portal, one can obtain a copy of the tax bill
at the Taxpayer & Business Service Centre at Revenue House
• If one disagrees with the
tax assessment when receiving the tax bill, one can file an objection within
30 days from the date of the tax bill using the ‘Object to Assessment’
e-Service at myTax Portal; alternatively, one can also email the
same to IRAS
• For assessment purposes,
companies are divided into 2 categories based on the complexity of their
business and tax matters and risk to Revenue.
• Companies with
straightforward tax affairs (90% of the companies)
• Companies with more
complex tax affairs (10% of the companies)
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HMRC will contact the
accountant instead
• HMRC may ask to visit
one’s home, business or an adviser’s office, or ask one to visit them. One
can have an accountant or legal adviser along during a visit
• One can apply for
alternative dispute resolution (ADR) at any time if one doesn’t agree with
HMRC’s decision or what they’re checking.
• Post the check, HMRC will
write to inform the results of the check
• Appeals can be made if
there is disagreement with the decision of the HMRC
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may be at an IRS office
(office audit) or at the taxpayer’s home, place of business, or accountant’s
office (field audit)
•If the IRS conducts the
audit by mail, the letter will contain the request for additional
information; however, if there are too many books or records to mail, a
request for face-to-face audit can be made
•If the assessee disagrees
with the audit findings of the IRS, the IRS offers ADR, i.e., mediation or
appeal
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BEST PRACTICES
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US
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JAPAN
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CANADA
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INDIA
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Electronic Federal Tax
Payment System (EFTPS)
• Provides taxpayer with the
convenience and flexibility of making the tax payments via the Internet or
phone
• Helps to keep track of
payments by opting in for e-mail notifications when taxpayers enrol or update
their enrolment for EFTPS
• Businesses and individuals
can schedule payments up to 365 days in advance. Scheduled payments can be
changed or cancelled up to two business days in advance of the scheduled
payment date
• Provides up to 16 months
of EFTPS payment history
• Tax professionals /
providers can register through this software and send up to 1,000 enrolments
and 5,000 payments in one transaction. Users can synchronise enrolments and
payments between the software and EFTPS database in
real-time
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E-Tax System
• Enables the taxpayers, by
way of Internet, to implement procedures for filing of return, notice of
change in place of tax payment, etc.
Digital signatures are
exempted if returns are filed through E-Tax
Ease of filing return and
payment of taxes
• Availability of filing
assistance
on the National Tax Agency (NTA) – allows the taxpayer to file the return by
just entering necessary information as displayed
on the screen
• NTA has set-up touchscreen
computers at tax offices for taxpayers who are unaccustomed to using PCs
• Easy payment of taxes by
utilising ATMs connected with Pay-easy
Other initiatives
• NTA has set up a
Professional Team for E-commerce Taxation (PROJECT); the team collects
information on
e-commerce service providers and others, conducts tax examination based
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Online access to personal
information
• My Account online
provides Canadians
with the convenience and flexibility of accessing their personal income tax
and benefit information on a secure website
• Drastic reduction in
taxpayers visiting office or calls to the traditional inquiries line
• Website survey measures
user satisfaction as consistently 85% (or more). While around 70% of
Canadians think it is unsafe to transact on the Internet in general, the CRA
enjoys the highest level of trust of any organisation
• My Account
has upheld this trust by requiring a rigorous authentication of My
Account users by requiring four ‘shared secrets’ to validate the
identity of the user
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Ease of filing returns and
payment of taxes
• Easy E-filing of income
tax returns with pre-filled ITR-I and IV (taking data from
previously filed ITR)
• Facility of paying tax
online has been available for a long time
Infrastructure
• Centralised Processing
Centre 2.0 Project to bring down the processing time from the present 63
days to one day and expedite refunds
• The TDS Reconciliation
Analysis and Correction Enabling System (TRACES) of the Income tax
Department allows online correction of already-filed TDS returns. Hassle-free
system that does away with the lengthy process of filing the revised return
Grievance redressal
• Department provides
state-wise IT ombudsman (an independent jurisdiction of the Income tax
Department) with whom the taxpayer can take up his grievances
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US
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JAPAN
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CANADA
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INDIA
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• Option for bulk provider –
Designed for payroll processors who initiate frequent payments from and
desire automated enrolment through an Electronic Data Interchange (EDI)
compatible system
Where’s My Refund Tool
• Use the Where’s My
Refund Tool or the IRS2Go mobile app to check your refund online. Fastest
and easiest way to track refund. The systems are updated once every 24 hours
• Refunds are generally
issued within 21 days of electronic filing of returns and 42 days of
paper-filing of returns
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on information collected and
develops and accumulates the examination method. It provides the tax
officials and the tax office with the information collected and various
examination methods
• A call centre has been set
up to handle delinquency cases (where tax payment has been defaulted)
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Assessment process
• Faceless assessment –
Scrutiny assessment with the objective to impart greater efficiency,
transparency and accountability, with dynamic jurisdiction. Personal hearing
(in limited scenarios) to be conducted through video-conferencing facilities
• VC facility – The same
shall be available on tabs, mobiles, PCs, etc., eliminating the requirement of assessees
visiting the Income tax Department
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To simplify the structure
of the direct tax laws, the new direct tax code aims at benchmarking the Indian
practices with some of the best practices across the world and implementing the
same. While some countries have started electronic assessment of returns, India
has been the early adapter to fully implement E-assessment (except in certain
cases).
THE INDIAN STORY
The Indian tax
authorities have been early adapters of technology. The systems implemented so
far have helped direct taxpayers applying for tax registrations online,
e-payment of taxes, reconciliation and e-viewing of tax credits, e-filing of
tax returns, e-processing of returns and refunds by authorities, etc.
As for indirect
tax, with the implementation of the Goods and Services Tax (GST), all
compliances, payments and credits matching are proposed to be administered
online. The tax authorities have also used IT systems as a risk management tool
to pick up returns / consignments (in the case of customs) for scrutiny.
Some new
technologies that have been implemented have helped increase transparency and
reporting requirements; these are:
(i) Monthly GST returns with invoice-level
information details.
(ii) Reconciliation of GST returns with audited
financial statements and potentially in the future with filings across tax
filings, e.g., income tax.
(iii) Increasing levels of disclosures in income tax
filing, e.g., disclosure of personal assets, comprehensive filing for
cross-border remittances and Income Computation Disclosure Standards (ICDS).
(iv) Mandatory linking of Aadhaar and PAN and
quoting of Aadhaar on particular transactions: Annual information return (AIR)
replaced by statement of financial transactions (SFT) and expansion in the
scope to include details of high-value cash and other transactions such as
buybacks by listed companies, and purchase and sale of immovable property
(v) Under BEPS section plan, requirement of
three-tiered TP documentation, i.e., (a) Master file; (b) local files; and (c)
CbCR.
(vi) FATCA and CRS filings.
DATA
SHARING BETWEEN COUNTRIES
In recent years,
India has re-negotiated its tax treaties with countries for inclusion of an
exchange of information (EOI) clause. India has also complied with the
implementation of BEPS Action Plan 5 – Transparency Framework through timely
exchange of information, especially tax rulings, and sharing of information
concerning APA’s (except unilateral APA).
And in tune with the BEPS Action Plan 5 – Transparency Framework, India
has upgraded the relevant technological framework to ensure compliance with the
same. The 2018 peer review report on exchange of information on tax rulings
issued by OECD also corroborates India’s compliance with the terms of reference
(ToR) for exchange of information.
E-ASSESSMENT
E-assessment
enables the taxpayer to participate in tax assessment electronically without
visiting the tax office. This is an attempt to eliminate human interference and
bring in greater transparency and efficiency. The E-assessment process works as
follows:
SOME INITIAL CHALLENGES
LIKELY TO BE FACED UNDER E-ASSESSMENT
Given that the
Department has extended the deadline to respond to the tax notices issued under
the E-assessment scheme, it is evident that there are challenges being faced by
the assessees / tax officers. Some of the other challenges that may arise in
the future are as follows:
(a) Knowing whether the point of view highlighted by the taxpayer has
been fully understood by the Revenue – more so for large taxpayers with
evolving business models;
(b) Working around
the technology limitations, including extent of information which could be
uploaded; enable option to ‘Preview submission’ and give consent to closure of
assessment proceedings;
(c) Obtain clarity on a few areas including: (1) Procedure of video
conferencing – this should be mandatorily allowed prior to finalisation of
draft order by the assessment unit; (2) Allow maintenance of E-order sheet
which tracks events, movement of files and filings during the course of
assessment;
(d) Upload of
scanned version of documents not being in machine-readable format, resulting in
manual inspection;
(e) Difficulties
with respect to repeated uploading of voluminous scanned documents and varied
details being sought;
(f) Lack of
structured consumable information for the assessing officer and little to no
use of analytical technology;
(g) Since the
remand proceedings are left with the jurisdictional assessing officer who may
not be familiar with the issue, the system of remand may be time-consuming and
cumbersome;
(h) Rectification
of mistakes, levy of penalty is also the responsibility of the jurisdictional
assessing officer who may not be familiar with the issue. This may result in
delay in rectification proceedings and the process of levy of penalty becoming
cumbersome.
The above
challenges are quite evident but with the implementation of the scheme and the
familiarisation of both the Department and the taxpayers with the scheme, it
may eliminate these shortcomings in future and the objective of faceless
assessment for better tax administration will be definitely achieved.
THE ROAD AHEAD FOR
E-ASSESSMENT
(1) Taxpayer
profiling: The Income tax Department is considering whether to deploy
artificial intelligence to create a tax profile for the assessees. With the use
of machine learning along with artificial intelligence, the tax authority will
be able to get a comprehensive view of the taxpayer’s profile, transactions,
network and documents to drill down to the underlying crucial information;
(2) Out of the
58,322 E-assessment cases selected for F.Y. 2017-18, simple returns most likely
to be taken up and completed before the close of F.Y. 2019-20;
(3) Substantial
increase in the number of scrutiny notices to be issued u/s 143(2);
(4) Assessment
procedures likely to become more stringent with standardised positions from
technical unit, penalty, launch of prosecution; recovery of taxes expected to
be more seamlessly integrated;
(5) Trial period of
2016-17, 2017-18 and 2018-19 will allow the Department to create a robust mechanism
to analyse taxpayers further, test the facilities and infrastructure required
and create the required database (technical units) which will facilitate
faceless assessment;
(6) Office of CIT
(Appeals) most likely to be organised based on taxpayer industry with standard
technical positions to expedite disposal. Appeals to ITAT expected to be for
limited situations.
ROLE OF TAX
PROFESSIONALS3, 4
Tax professionals
are expected to move beyond their domain of working with legal principles
emanating from past tax rulings, accounting standards and confidently guide
their clients inter alia by understanding the challenges of implementing
taxation of digital economy, being intuitive to what tax administration will
look for in audits and synthesise these risks today, creating solutions and
compliance frameworks based on these future trends.
Apart from becoming
multi-disciplined, tax professionals expect the growing requirement for
business awareness to continue its upward trend. This is second on the list of
the most important areas where competency is currently lacking. Tax
professionals in business and in practice expect to move beyond their
traditional roles as technicians focusing on compliance and reporting the past.
Planning for future risk is moving beyond the possibility of an unexpectedly
large tax assessment. Consequently, tax specialists will need to look beyond
the tax silo. The increasing influence of, and interaction with, stakeholders
who are not tax specialists will require tax professionals to take a more
inclusive and risk-oriented view of business in the years to 2025.
They will need to
think and plan commercially and strategically. They will need to monitor
existing and expected legal, political, social and technological developments,
to assess potential outcomes and advise on the financial and reputational
challenges and opportunities of various courses of action. There have always
been grey areas in tax, but heightened media and public interest in tax
transparency will add more uncertainty. For example, pressure on governments
may intensify their focus on substance over form, leading tax authorities to
reject technically legal tax arrangements simply because they breach the spirit
of legislation.
Translating tax for
non-technical stakeholders, such as the board, business management, investors,
clients and the media, will become progressively more challenging. The roles
and responsibilities of tax professionals are expanding. Tax directors expect
that by 2020-25 they will be part of the business risk management structure.
They expect to collaborate in the design and running of control processes; they
expect to form partnerships with other business leaders, and not just to
provide them with information. Complex processes will follow basic tasks in
being outsourced to service providers and managing this will also require new
‘partnering’ skills.
The tax professional needs to start critiquing his tax reporting,
relooking at every function which is performed today:
(i) be it in-house or externally managed;
(ii) the type of ERP, software application being
used to deliver the reports;
(iii) analyse audit trends, audit algorithms;
(iv) analyse the stress arising from evolving
compliance regulations – 15 days’ response to tax notices, reduced time for
assessment completion, providing details with respect to GST as required by the
tax audit report as amended from time to time.
The tax professional
needs to have a conversation with the audit committee to explain the
requirements of an integrated tax function and the need to create a road map
which provides for phased implementation of technology in the tax function. An
indicative road map could cover these areas:
(A) Introduction of technology in the following
areas:
– Document management in response to the
automated system followed by the government;
– Litigation management including ensuring
that there is a proper work flow to respond to notices received from the
government;
– Modularise tax submissions, attachments to
ensure consistency, brevity and analytical approach to data collation, review
and submissions;
– Relook at the data flows within the
organisation and identify tax control risks;
– Create one common repository system from
which all statutory compliance data is reported;
(B) Management of
tax content, rules and logic for companies with global presence using
technology;
(C) Automation in the computation
of current tax provision, deferred tax provision and effective tax rate (ETR);
(D) A data reconciliation engine can reconcile
data from different sources to increase the accuracy and reliability of the
data being submitted to the authorities.
This one-time
technology re-boot is also likely to include estimating its budget which would
vary taking into account the countries involved in the roll-out and the
reporting which are to be prioritised for the automation.
A precise way
forward would have to be devised for each organisation considering its
dynamics, global presence, evolution in the technology space, its tax history
and availability of talent to project-manage this transformation and power the
future of tax reporting as Indian corporates chase the US $5 trillion dream.
The above, while it
seemingly requires re-skilling of senior tax professionals, does provide a
platform for the chartered accountant of the future to evolve into a
technology-led service provider whose services remain even more critical in a
digitally-administered tax world.
(The author was
supported by Kirti Kumar Bokadia and Gokul B. in writing this article)
