AUGUST 24 , 2020

By Vidhu Shekhar Singh, Former Member, Income Tax Settlement Commission

"BUREAUCRACY develops the more perfectly, the more it is dehumanised, the more completely it succeeds in eliminating from business love, hatred and all purely emotional elements."

These are the words of the German sociologist Max Weber who, in his seminal theory on bureaucracy, saw it as perfect model of rational legal authority. Weber reckoned that authority is the use of power perceived as legitimate by the society. He classified such authority in three categories: traditional which is rooted in the past i.e. a legacy, charismatic which relies on attributes of the leader as the source of power and finally, the rational legal, the raison d'etre of which is strict adherence to a set of impersonal and rigid rules.

The Faceless assessment scheme of the Income Tax Department launched by the PM on the 13th August 2020 is the only tax reform measure which addresses the tax administration rather than the law.

Obliquely, it recognises legal realism, as distinct from legal formalism. The essential tenet of the legal realism is recognition that law is administered by humans and is shaped by human prejudices. If predictability is the hallmark of an efficacious legal regime, it is severely compromised by human frailties.

The Faceless Assessment Scheme is a revolutionary step in addressing this conundrum by marrying technology with the Weberian model of legal rational authority. At the heart of this scheme are three elements viz. elimination of discretion, disaggregation of functions and standardisation of outcomes. Identification of cases for assessment on the basis of data available with the Department by computer program, random assignment to a specific assessment unit for evaluating the reply of the taxpayer, verification of the same and technical inputs segregated into fire walled units, provision for review of view adverse to the taxpayer by another unit and the communication with taxpayer from a central portal, are the key elements of the scheme.

While the jury is out on the efficacy of the scheme in tax administration to be debated by persons with domain knowledge, the path breaking initiative in the reform of the bureaucracy must be acknowledged and replicated across the board.

With the above caveat, some of the lurking doubts and issues as to its objectives and implementation in the working of the department can be conjectured. The big radical change is the hiving off the assessment function manned by limited number officials, completely sanitized from the bulk of the department which would be charged with residuary functions such as recovery, consequential appellate/judicial proceedings etc.

Instead of an overarching jurisdiction hitherto being exercised by the assessing officer, functional bifurcation has been made. The critical assessment function has been further split into assessment, verification and technical review units whose jurisdiction is assigned randomly.

Each unit is to function as a team and complete anonymity is maintained not only between the taxpayer and the units but also the units themselves. The provision for referring the assessment adverse to the taxpayer to a review unit is an innovative mechanism for course correction in the assessment stage itself. The final assessment order is the fruition of the collaborative effort of all the units mediated digitally by a national portal.

The archetypal assessing officer, celebrated in the Departmental folklore and idolized in public imagination, is of one with sharp intellect, dogged investigative acumen, deep insight in law, skillful drafting abilities and indefatigable perseverance to successfully pursue and navigate layers of appellate framework.

Geographically proximate to the taxpayer allowed the officer to deploy the wide variety of intrusive and non-intrusive powers available in his armory. The erstwhile structure provided the canvas for an officer to inject considerable passion and ingenuity in an otherwise routine bureaucratic function. The unearthing of the Harshad Mehta banking scam and Bihar fodder scam had major contribution from such dedicated officers. However, the Faceless Assessment scheme delivers a body blow to this aspirational role model and decisively adopts a systemic approach for assessment. The reasons for this are not spelt out but are not far to discern. To expect hundreds of assessing officers to possess the above attributes even in lesser degree was patently disingenuous. This was compounded by widespread lack of sincerity and apathy coupled with poor supervisory oversight, absence of any mechanism for institutional memory or technical support to the assessing officer. This thrived in a system where performance appraisal was largely subjective, placements were made generally on the basis of a set rotational formula, audit mechanism was woefully ineffectual and vigilance set up was obsessed with post facto examination of purported individual misendeavor rather than addressing organizational malaise. Resultantly, being "pro revenue" became the default mode of functioning which roughly translated into a cavalier adoption of a view adverse to the taxpayer, without proper appreciation of law/facts, perfunctory investigation and complete lack of application of mind. Frozen jurisdiction largely on geographic basis bred avoidable familiarity between the officer and the taxpayer and, at worst, connivance.

The Faceless Assessment Scheme is heralded as providing a solution to myriad issues plaguing the Department. But at the same time, it fails to consider that tax avoidance and evasion is granular, highly complex, unique and differentiated depending on nature of the activities, geographical factors, profile of the taxpayer, the regulatory environment within which it operates. To expect computer algorithms, though programmed by humans to identify these, particularly at incipient stage, is challenging, if not improbable. Large corporations armed with the services of highly paid professionals indulge in subtle financial engineering unlikely to be captured by vast data management systems. Geographically, remote assessment units, with little idea of the profile of the taxpayer and sketchy familiarity with the relevant accountancy, legal and domain nuances would be handicapped in proper appreciation of the case. Deterrence as a factor in compliance, which leverages small effort to achieve a wider ecosystem of compliance, is effective when the enforcement arm of the law is visible, perceived to be exemplary, responsive, proximate and proactive. Given the scale of tax evasion in India, it is unlikely that the Investigation arm of the Department alone can fulfill the task. The lack of proficiency in English language in which the e-proceedings are presumably to be conducted may have debilitating consequences.

However, the biggest challenge of the new scheme will be to psychologically engage the workforce in the assigned task. As the quote at the beginning of this article suggests, the Weberian model of rational legal authority dehumanises the personnel. Work satisfaction is a casualty when the person tasked for it is a mere cog in the wheel, when he has no control over the final product, when there is little sense of pride, when the ownership of quality is defused and likelihood of appreciation of commitment and diligence is low. Will the Marxian construct of alienation come in play?

A final food for thought. Technology is highly seductive and may give a false sense of absolutely secular, secure and impartial platform. It can be a facade behind which sinister objectives can be pursued on an industrial scale.

Will the Faceless Assessment Scheme deliver?

[The views expressed are strictly personal.]