Reforms in tax administration are showing the first signs of positive results. Collections have risen sharply in the first few months of this financial year. This was contrary to expectations that the projections on revenue collection were over-optimistic. Reducing the scope for tax evasion in just one part of tax administration and it has already resulted in a 50 per cent increase in collections. The reform involved the setting up of a pan-Indian online system for information about tax deduction at source.The Tax Information Network (TIN) involves the computerisation of tax deduction at source, permitting cross-checking of taxes deposited at banks with the tax statement of the assessee. Earlier no cross checking was done to see if an employer had actually deposited taxes as claimed. Paper forms have been replaced by online information at TIN facilitation centres. TIN rules out fake statements by employers and fake certificates by employees reducing the scope for corruption. It also reduces compliance costs of the tax payers who will no longer have to obtain TDS certificates. Iformation will be available with the tax authorities against the tax payer’s PAN number. TIN reduces the cost of compliance for both employee and government.Today India has a huge advantage in the capacity and low costs of building nation-wide IT systems. In the last few years this has been undertaken with great success in railways, equity markets and, more recently, in commodity markets. This advantage allows quick implementation of large scale complex systems. For example, it was decided to build the TIN as late as July ’03. By January ’04, the system was up and running. In other countries, systems of this scale and scope take much longer to build and are far more expensive. India should effectively harness its IT advantage to the maximum. Further, because the UPA may remain bogged down on the bigger reforms due to political considerations, there is even more reason for the government to actively continue with such ground level reforms. Looking at the success of the TIN, the finance ministry should embark on a full automation of all tax processes as soon as possible. All collection and administration must be brought under modern IT-based systems which operate with rules and remove the scope for discretion, corruption and harassment.
