Book Review: Parthasarathi Shome (ed.) Indian Tax Administration: A Dialogue

This is a volume that includes articles by mostly the tax administrators of India, bookended by a good review of issues in tax administration by the editor and a summary of the issues identified as important in workshops involving the tax administrators, practitioners and tax advisers. It would be immediately apparent that the missing perspective is that of an ordinary taxpayer (as distinguished from the large taxpayers, presumably represented by the tax advisers). Perhaps they are not important—at least in terms of revenue. But I suppose numerically they would constitute the overwhelming majority. Also, if the tax administration is concerned about widening the tax base, they should matter.

In fact, a major missing part of the tax administration business in the volume relates exactly to this; there is practically no discussion of taxpayer identification and bringing them into the tax net despite the oft-repeated observation that the taxpayer base in India, particularly that of personal income tax is much too small. There is also practically nothing on the link between the tax law and tax administration—how various legal provisions help or hinder tax administration.

Turning to what is in the book, there are two articles each (for indirect and direct taxes) on administrative structure, audit selection and dispute resolution, one on large taxpayer units, two on use of ICT, one on taxpayer information service and one on effectiveness of tax administration in the case of state level VAT.

The discussion of administrative structure is intrinsically bland, but the authors have tried to add value by comparing the Indian system with selected countries, and by making suggestions about organisational reform. The logic of the reforms, and how the reforms would cater to the perceived problems, however, are probably not given due weight in the direct taxes paper—a typical problem with an insider view. The two papers on dispute resolution are informative, but in my view have a common failing. They are primarily organised by countries, whereas it would probably be more useful to discuss different aspects of possible conflicts in India and discuss improvements based on practices elsewhere together. All the same, the one on indirect taxes does feel more balanced with respect to taxpayers and the tax administration. On the two papers on use of ICT, again, the information content is quite large, but assessment of effectiveness part is modest. One feels that it would have been a good idea to juxtapose the taxpayers’ view to the administrators’ view (the summary reports of the workshops gives some idea of the former). In fact, this aspect is more critical and complex for the indirect taxes, but one gets an impression that it is precisely there that the use of ICT is less sophisticated and successful in India. In any case, this is an ongoing process and one can be sure that plenty of improvements are possible. The paper on taxpayer information covers the whole ground, but typical Indian problems get short shrift. For example, there is no discussion of use of mobile telephony instead of internet-based solutions, although the former has much higher penetration than the latter. The examination of the effectiveness of state level VAT administrations is based on a report on the same subject by the CAG; it valiantly tries to carry out an analytical exercise on the basis of rather imperfect data. Apart from ranking the covered states in terms of the said effectiveness, it lists relatively strong and weak areas of VAT administration in each of the states covered, which should help focus their attention.

The volume is undoubtedly informative and quite useful for those looking for a better view of the tax administration in India. But readers would do well to draw their own conclusions regarding necessary reforms and how they should be introduced and implemented. In India; many things are ‘done’, but of them several are really non-functional for various reasons including absence of complementarities. Introduction of reforms has to be followed up by periodic reviews of their actual functioning. A book like the present volume is useful input into the process of such review.