OCTOBER 17, 2014

By A Netizen

STRONG Prime Ministers, particularly when backed by single party majority in the Lok Sabha, have tended to leave their mark on the administrative structure. Given the radical transformation in the socio-economic environment since the last such episode in the history of our country, the impact on the politico-administrative structure has the potential of being all the more significant. Our Prime Minister's hitherto demonstrated measuring-scale of efficiency has been the synthesis of palpability of outcomes and acclamation of deliveries thereon. Therefore, garnering of tax revenue without the appellation of "tax terrorism" is a given with a further imperative to demonstrate that no part of the administrative structure is a moribund impediment in the scheme of governance; its form, armoury and effectiveness, therefore, cannot but come under scrutiny sooner than later. The question that begs an answer is whether a mechanism that is five decades old is capable of rational definition of outcomes and of exceeding the parameters of evaluation.

A better opportunity for introspection it cannot but be: on the threshold of a major re-organisation exercise and armed with the report of the Tax Administration Reforms Commission set up by the former Finance Minister. The first is an acknowledgement of the role of tax administrators – both direct and indirect – in the scheme of governance and the second an idea, undoubtedly brilliant in concept but which, like all of such ilk (e.g. CEIB, LTUs), has inevitably fallen prey to the tyranny of the entrenched system. As a dynamic organ of the sedate and conservative tax collection structure, the Commission should have had more permanence attached to it instead of being a fleeting experiment – functioning as the conscience-keeper of soulless taxpersons while distanced from the structured operations of commissions in general and the department in particular. And its feedstock be the reports of the superfluous Tax Ombudsmen; after all, what could be a better source of fault-line information than the grievances brought before an independent body. It would at, one stroke, have institutionalized constant evaluation for re-engineering while according immediate relevance to the Ombudsmen.

Since the late fifties and into the late sixties, culminating with the Administrative Reforms Commission, implementation of performance and outcome budgeting has been benchmarked as essential to governance that transcends the imperial compulsion. Unfortunately, in the classical reaction of system tyranny, the responsibility for initiating the performance budgeting process unfailingly traverses to the lowest field unit in the hierarchy – in the process the bird's eye-view is substituted with that of the worm instead. Corporate set their targets at the top initially and these are parceled out to subordinate entities to arrive at successful outcomes. Small wonder then that performance budgeting has been a non-starter and the less said about delivery systems the better. In the context of the governance model of Mr Modi, it is only a question of time before performance budgeting and outcomes evaluation gets its rightful place.

It is moot whether the recommendation of the Tax Administration Reforms Commission for abolition of the post of Revenue Secretary without suggesting a substitute mechanism will ensure that the revenue mechanism be found to conform the new governance paradigm. In any governance mechanism, the Permanent Secretary is the accounting head of the department and hence accountable for the executive actions of the permanent executive – the political executive that is in office temporarily and subject to changing ideologies and colours can hardly be held accountable. The recommendation has not borne this crucial factor in mind. It is also doubtful if a non-professional political executive can interact with the vast tax collection machinery without the benefit of assistance of a "semi-layperson". On the contrary, this implications of this misguided recommendation is bound to draw attention to the two boards and their utility in the new paradigm. Service officers should not overlook the argument of redundancy of the Boards in the context of Secretary-level heads of Directorates and key Zones of the two taxation bodies.

The field formations have been subject to restructuring on more than one occasion with emphasis on assessee-facilitation decentralizing. A third tax source was added to the traditional dual source – international trade and manufacture. The tax structure and processes have undergone transformations that have eliminated the traditional disputes with assesses. Revenue collection is now visualized as a function of reducing cost of compliance and establishing crippling costs of non-compliance. Formations, thereby, have only a negligible claim to be pivotal in increasing tax revenues notwithstanding their presence being crucial in reinforcing fear of being non-compliant. Through all these changes of structure and attitudinal transformation, the Boards alone have remained unchanged with numerical enhancement being the sole variation.

With the division of the Central Board of Revenue in 1963, the role of the Central Board of Excise & Customs and its members was unambiguously clear. The responsibility assigned to the members in charge of the two tax sources brought with it supervisory responsibility over the respective Collectorates – there were no Chief Commissioners then. One member was authorized to discharge the appellate authority – vested with the Board before the Tribunal was established in 1982. The personnel function was limited to transfers and promotions of a few hundred officers of the service. With the addition of the second member to handle the increased number of central excise formations and the territorial assignment that ensued was taken further to assign territorial charges to all the members. The principal casualty of this development was the relegation of the main functional tasks to the fringes. The creation of the posts of Principal Collectors (later re-designated as Chief Commissioners) was an opportunity to delegate administrative supervision to these levels and would have strengthened the functional operation of the Board, jointly and severally. On the contrary, the Chief Commissioners' territories have been distributed among all the members – ostensibly for supervisory efficiency but in reality to retain control that apparently determines the supremacy that is typical of a feudal mindset. It is only natural that most of the members have little time or inclination to effectively strengthen the functional aspect of the Board. Earning the respect of field formations from effective function performance calls for knowledge, perspective and decisiveness in a strategic context. It is easier to resort to the traditional field formation structure and hence the Board has become a shadow of its subordinate offices lengthened backwards – with hardly any substance and with the appearance of performance that relies upon archaic technical reports.

Understandably, today the customs and central excise function does not require the detailed scrutiny and decisions that was the hall-mark of the old days of high tariff, less-than comprehensive tariffs and inadequate communication technology. Service-tax collection mechanism – which was the ideal candidate for instituting uniformity, practicality and painless compliance – has been neglected from the beginning with consequent anarchy in the field. The Directorate General of Service Tax was literally castrated to the point of irrelevance. It is about time that the original functional division in relation to the sources of tax is, therefore, is accorded a decent burial. This is not to gainsay the critical relevance of a Board should it be able to set aside its shallow pretence of hierarchical superiority and opts to play an important part in challenging the field formations to give of their best by implanting good practices.

With the creation of field posts at the same level or almost the same level as that of the Board members any or all superficial justification for territorial division among the members of the Board is no longer in the realm of the rational. It should be humanly possible for the Chairman and one member to handle the analysis and course correction of the proposed zones. It is entirely probable that either the creation of the two new top levels may be called in question or the Board itself may find itself obliterated in the near future. Much as the members may be inclined otherwise, to continue to subject them to the same subordination that is currently the lot of the Chief Commissioners would be a pitiable exhibition of our incapacity for imaginative institution-building.

Contrary to our prejudiced belief, the distinction among the three tax sources is more lexicographical than substantive – the fundamental principles on which the legal framework has been erected is common. Functional segregation of the three sources of tax is a paradigm of a by-gone era. Tax source segregation will, in the age of increasing recourse to systems, as well as the widespread use of digital records, merely impede smooth functioning will only be impeded. Instead, operations should be entrusted to one constituent of the Board with systems and logistics of the three sources coalescing as one function. This change would eliminate the recourse to zonal supervision pathetically resorted to for avoiding discharge of functional responsibilities that has given birth to the anarchy prevailing in tax collection. The collegial status of the Board that is now a mere figment in the minds of the older members of the service must be revived to resolve issues that concern all the three tax sources.

Personnel management – our most neglected facet – has to be viewed beyond the patronage of the transfer season. Every probationer is an eventual leader of the service and the unless the current leaders pay attention to the range of their training, develop their capacities by planned placements, expose them to systems prevailing across the globe and delegate authority to them, the service itself faces a bleak future. Revamp of the NACEN and career planning modules are, in themselves, subjects of exhaustive study. So are the early identification of potential leaders from the subordinate feeder cadres and their development. It is common knowledge that most Members are uninterested in this and value the personnel charge solely for the patronage that devolves on them during the annual transfer exercise. Vigilance administration – another neglected den despite the reality of ever-increasing rent-seeking – needs overhauling in every aspect from preventive vigilance, complaint handling, speedy and informed investigation, judicious enquiry and commensurate punishment. Only then can the reputation of the service and the tax administration be salvaged.

Technology is the key to optimal tax collection. And it does not laboring that technology is ever mutating mandating a close familiarization at the highest level. Infrastructure is an essential component of resource utilization. Establishment of permanent structures, appropriate designing of office space and rational deployment of equipment is of strategic importance. More so as "smart cities" will not only be a reality but also will soon proliferate requiring an appropriate response on the part of tax administration.

The judicial aspect of tax collection also happens to be one of the most neglected. Quality of adjudication, review and appeal orders will ensure dynamism in assessee-relation and non-discriminatory tax treatment. The choking of the higher judiciary with avoidable litigation can well be eased if this facet is properly administered. Monitoring of these authorities combined with calibrated rectification calls for an activist role at the highest level and a re-designed scheme of oversight of the quasi-judicial hierarchy can be ignored only at our peril.

The bridge that links the present and the future is strategic thinking. The tax administration would be well-served with assigning of this function, supported by think-tanks and the intelligence apparatus of the Board, to another constituent of the Board. International co-operation goes hand-in-hand with strategy. So are the monetization of booked realizations.

The process of professionalization that started some years ago with the condition of one year of residuary service also needs to be taken to its logical conclusion. The short time is sufficient merely for lobbying themselves into a post-retirement sinecure and with no thought spared for the larger issues facing the tax administration system. The impending dispersal of "equals" and "near equals" in the field should enable a rethink on the condition of residuary service for enhancement from one to two years. A Board with a more youthful profile and marked by staggered attrition should be able to provide a continuity to the on-going process of course correction. The search for replacements should also commence about three months before the inevitable vacancy arises.

The members in-charge of operations, infrastructure, human resource, judicial and strategy would be best situated to devise outcomes and assign parts thereof to the field formations. These outcomes would be directed towards optimal revenue collection that is not intrusive and cost-efficient. It will also infuse much-needed accountability that the present allocation of work has obfuscated. Collegiality will be reinforced with the pooling of individual innovation. This level of technical competence will, additionally, be the best unspoken argument for repelling any attempt to alter the composition of the Board.

Fifty years ago, the Central Board of Revenue was subject to a study by Frank W Krause under the aegis of the United Nations. We managed to sweep his recommendation on performance budgeting under the carpet. Today, when we are in danger of being swept aside, the time has come to discard our feudal past, steeped in traditional hierarchy, stumbling in modern conditions and boldly seize the opportunity to reform, redesign and rededicate ourselves to the installation of transparent and effective tax administration.