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American IRS vs Indian IRS: USA nowhere close to India, ugh!

TIOL - COB( WEB) - 832
SEPTEMBER 08, 2022

By Shailendra Kumar, Founder Editor

WHEN it comes to an analogical debate over best practices or a system-driven administration, most of us lurch to hand-pick a comparable from the United States of America! Doubtless, America is the most ancient democracy whose marriage is fertilised by the abundance of capital and creative technological destruction by innovation! However, when it comes to tax administration, including the physical and IT infrastructure, India is inarguably streets ahead of not only the USA but also dozens of major economies! I am convinced but also pretty certain that vilifiers of the Indian tax administration would be more inclined to find fault with or treat it as a fool's conviction or may simply greet it with a shrug! Anyway, I would be making a serious bid today to showcase the forte of the Indian revenue agencies vis-a-vis the Internal Revenue Service (IRS) of America.

Both on direct and indirect taxes fronts, India has implemented sprawling computerisation, automation and now AI & ML-driven IT platforms. Thanks to sizeable allocation of resources, the Indian IT giants, except for some short-term horrific glitches, have delivered fairly robust and efficient online platforms which facilitate monthly returns in millions in the case of GST and annual returns in hundreds of millions a day for the income tax. With the introduction of e-payment of taxes, e-assessment, e-audit, e-scrutiny, e-refund, e-filing of applications for advance rulings and even e-appeal, Indian taxpayers are saved from the gaping maw of 'hungry' administration. Minimum interface maximises the comforts of the taxpayers whose blood used to perhaps clot out of fear in the past!

Automation of key functionalities of the Indian tax administration has also sprouted huge and plush bits and bytes. Teeming with such gilded data, tax administrations have of late been sumptuously scooping deep-mined business intelligence and laser-focused insights for coordinated preventive drills. Rococo data sharing arrangements among the key fiscal arms such as MCA, FIU, GSTN, DGFT, Customs, banks and Income Tax, have enabled the government to hire an army of data scientists and make a toothsome use of modern IT tools such as big data analytics, Artificial Intelligence and Machine Learning, for valuable inputs for policy-making, segregation of target audiences for subsidy or direct benefit transfer, almost-real-time tabulation of sector-specific services exports data and creative 'preventive bumps' to be designed to stump tax dodgers.

Income tax 'Project Insight' is a humongous effort to gather and parse in unstructured data from all sources, including social media and craft 360 degree profile of likely tax cheats. This also leverages for implementation of Common Reporting Standards (CRS) and Foreign Account Tax Compliance Act-IGA. It is a highly ambitious project hemming close to techno-utopian frontiers. However, it has helped the policy makers in designing legislative ramparts and moats against rising silhouette of 'elegantly-structured' tax avoidance by guileful tax planners for their MNC clients! Similarly, the GSTN has its head and teeth stuck into developing advanced analytics platform. Staring into the future, with a tech-savvy Prime Minister in saddle, I can safely vouch for that India may further scale up the use of technology not only for gathering more revenue but also 'creative conservation' on the front of public spending. Besides the IT aspect, India has, over the decades, built pretty impressive physical infrastructure in terms of tax offices, taxpayers' services; automated response to queries; clubs and sports facilities for the taxmen. I am not canoeing down the river of behavioural issues of our taxmen as a large swathe of traits relating to enforcement and audit is surreally universal in hues and taste. Trigger-happy tax Inspectors are omnipresent! Taxman drooling for more revenue is a typical treasury behaviour! However, taxman having a chortle at taxpayers' ordeal is no more common now! Let's also not forget that tax reform is always the bridesmaid and never the bride!

Let me now swirl to the American counterpart of the Indian revenue agencies - the Internal Revenue Service (IRS). Though it is a globally feared federal agency for its Bison-like reputation a la its performance to flush out hidden troves from tax havens in early 2010s but it is also a live testimony to what may be described as 'hammer being pinned down by multiple nails'! It is a poor victim of America's polarised and slapstick politics. 'Bulldozer' immobilised! IRS wheelbarrows clamped! With the country rapidly turning into Dis-United States of America and the Republican Party's traditional hostility leaping a few notches up, the chronic underfunding of the IRS became a DNA-embedded malaise. In 1990s, it had 1.17 lakh employees. In 2021, it was left with 70,000 employees and it gathered gross revenue for the country to the tune of USD 4 trillion. The total refund last fiscal was above USD one trillion! During the COVID, both Trump and Biden used it as a reliable conduit to disburse stimulus cheques to the tune of USD 800 bn. Besides gathering taxes for the treasury, it is also lumbered with the onus to carry out Obamacare enforcement, foreign bank account tracking and child tax credit payments. The latest addition is to hunt down Russian yachts and luxury planes after sanctions being notified.

Owing to lockdowns, WFH trend, speedy retirement of baby boomers and hundreds opting for voluntary retirement during COVID, it had a backlog of over 24 million returns, 20 times more than normal, in early 2022. Experts believe that given the pathetic state of its infrastructure, dwindling human resources and medieval-age remnants of computerisation, it would take two years to process these paper returns. Paper is its kryptonite! Weird but true! It is buried in mountains of paper. It still uses fax machines! It started with one-page instruction in 1913 which has sprawled into 230 pages in its latest version of Instructions to file income tax return, ugh! The spinal cord of its nationwide database which was designed in 1960s computer language, has not been upgraded. Its taxpayers' phone lines keep ringing incessantly as it has no manpower to do so!

According to one survey, it answered one call out of 10 in 2021! Scrutiny of individual tax returns slumped by 50% post-2018 and corporate scrutiny by 40%. Its annual budget has dived by 20% since 2010 but the number of tax returns has skyrocketed by 20%. Its corporate auditing prowess has nosedived from 1.6% in 2010 to 0.3% in 2018! Aha! An invitation to rule-bending! And it happened aplenty! It has been 'outgunned' against large corporates. The prevailing 'tax gap' is estimated to be close to USD one trillion! It is best summarised by the US President Biden who had tweeted: "Here is the deal - If you spent USD 3 on your coffee this morning, that's more than what 55 major corporations paid in taxes in recent years." Shockingly incredible state of affairs! This reminds me of what Albert Einstein had once said - "Nothing is more destructive of respect for the government and the law than passing laws which cannot be enforced".

Now, the billion-dollar question before the Biden administration was - how to give away billions to the IRS when the US lawmakers, both the Democrats and the Republicans, lacked courage to summon enthusiasm for the agency? Stung by the certainly-not-epiphanic realisation that tax cheating is not a victimless crime as when the wealthy does not pay, everyone else ought pay to bridge the deficit, he manoeuvred to obtain the Senate approval for USD 80 bn budget for the IRS as part of his Inflation Reduction Bill. As per the Treasury Secretary Janet Yellen, the new budget is to be spent to hire 50,000 new hands to fill the gaps arising from the large army retiring in the next few years; upgradation of technology platform; improvement of customer-care services and clearance of backlog. But the political messaging from the GOP which has come like a blizzard, is - Mr Biden is hiring an army of 87000 rogue which would go ballistic against the Americans earning less than USD 4 lakh annually! Disinformation Darwinism is indeed at its best, today! A 'twitter war' is raging on the tech-frontier of fakery! New boundaries of flimflam are being carved out as the country inches closer to mid-term polls in November! Laboratories of democracy are fast turning into Petri dishes of deep-fakes scything through the fiscal landscape of America! I am confident that the IRS would soon be re-invigorated enough to mount its fiscal-bazooka against the tax evaders but till that time, the Indian IRS does score over its counterpart and our political community is indeed sensible enough not to indulge in organised fakery against the tax agencies in India! Ciao!


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