Trust Deficit … Is It?

CA (Dr) Vardhaman Jain has dealt with the sensitive topic of the alleged “Trust Deficit” between the Income-tax Department and the taxpayers based on the recent interaction between Sadhguru Jaggi Vasudeo and Shri Pramod Chandra Mody, the Chairman of the CBDT. The learned author has provided his own insights into what has led to the deficit and has offered valuable suggestions on what the two parties can do to bridge the same. He has also dilated on the role that professionals can play in the process

This is with reference to a recent webinar addressed by Sadhguru Jaggi Vasudeo which saw the participation of Shri Pramod Chandra Mody, Chairman of Central Board of Direct Taxes (CBDT) among other tax administrators and tax professionals. During the course of the webinar, the Chairman asked a question to Sadhguru which went something like this, “How do you bridge the trust deficit between the tax payer and the government?

Before we get into the nuances of the answer or solution, I would like to compliment the Chairman, CBDT, Shri Mody for his sincerity and courage. The courage lies in admitting and acknowledging that there is a trust deficit and the sincerity lies in the question as a genuine seeker. Here is the senior-most IRS civil servant in the Government of India, who sought to get, I believe, a philosophical cum practical solution to a problem which he acknowledges exists.

The response of Sadhguru is in the public domain in as much as the question is. This article does not propose to dwell upon Sadhguru’s response, which, I feel, was tad off the mark. Shri Mody, while asking that question did preface it by saying that he heads the tax administration in the country and his job is to raise resources for the greater good of the people. He did refer to the efforts made to ease tax compliance for tax payers.

The response of Sadhguru was, in a way, directed to the legislature and not the tax administration when he suggested abolition of income tax in preference to transactional tax. However, that would be an unfair response to the question of Shri Mody.

We need to appreciate the role of the tax administration, which is supposed to only administer the government’s policy and legislation and not enact legislation (or in this case, as the answer contemplated, dismantle the direct tax legislation). In all fairness, the question was apt and needs to be separately answered. What follows is an attempt to understand trust deficit in the context of tax administration.

One cannot be oblivious of the fact that for the ordinary tax payer, the tax administration is the face of the legislature. He does not distinguish between the tax legislator and the tax administrator. As such for all shortcomings in or harshness of tax policy, he would place his blame on the Income Tax Department. However, we shall disregard this aspect of the tax payer’s prejudice.

Any talk of trust presupposes a relationship. What is the kind of relationship envisaged? There are four pillars in this relationship – the legislator, the tax payer, the tax gatherer and the tax professional. Any talk of trust shall spring from the approach and actions of these four stakeholders.

Communication is the foundation of trust in any relationship. When there is a lack of faith in the utterances of Finance Ministry or its actions as reflected in the tax administration, the immediate casualty is trust.

A catena of examples can be given to show the chasm that exists – system driven or otherwise. The delay in issuing refunds, the absence of action on rectification petitions, the lip service in disposal of grievance petitions, the inordinate delay in giving appeal effect, non-disposal of stay applications or the mechanical rejection thereof, the attachment of bank accounts without disposing off the stay applications, the rejection of trust registration applications in a perfunctory manner, the non-disposal of appeals after hearing, the non-attendance to application for lower tax deduction certificates, the oscillation of matters between CPC Bangalore and the jurisdictional Assessing Officer, the last minute announcement of change in dates (of course, granting extensions), the change in forms and utilities at the eleventh hour are some of the irritants which contribute significantly to the trust deficit. High pitched and/or unreasonable assessments or unfair decisions in appeals with no feedback mechanism in place and even the audit team not attending to this malady aggravate the issue.

These are facts and as the renowned lawyer, Nani Palkhiwala observed – “Facts are stubborn things and they have the impertinence to stare you in the face”. They offend the taxpayer and more so when he feels that he is the minority who contributes to the Government exchequer for the rest of the majority and that he does not receive any adequate service in return. It may be true that the “no services in return” may be a perception issue. All the same, one cannot disregard the fact that the Citizen’s Charter remained a photo frame prominently displayed but not adhered to either in letter or in spirit.

It is heartening to note that the Tax Payers Charter has been proposed to be incorporated in the Income Tax Act to ensure trust between a taxpayer and the administration and reduce harassment. Shri Mody had then too said “The underlining theme with which we have been working till now is that we trust the taxpayers and from purely an enforcement agency, we are shifting our focus to being a service-oriented department.

Enduring trust cannot be faked with hypocrisy where there is little respect for the tax payer and he is treated as an offender by some who may not seem to be just and fair in the first place. Goethe had made a profound statement when he said ‘Treat a man as he is and he will remain as he is; treat a man as he can and should be and he will become as he can and should be”. It needs to be remembered that an untrustworthy person cannot trust anybody. As a corollary, if you do not trust a person, you reflect your untrustworthiness. It should also be noted that we have to raise our level of trust in the taxpayers (which the Department has attempted to do in a significant way, like for example accepting the returns filed by taxpayers). We believe in them and let them not betray the trust reposed.

Trust is felt in your interactions- personal or electronic. In the world of technology, where things seem to be depersonalized, it is important that the relationship is best maintained by operating at the best efficiency by keeping technology at your service and monitoring that it does not demonise your work as a bad master.

We cannot forget the fact that Income Tax is a direct tax (making a dent in the income/cashflow of the tax payer) and cannot be equated with other taxes and levies in the manner its collection is administered. The statement that comes to the mind is of Shri Palkhiwala who famously said “Taxes are the life-blood of any government, but it cannot be overlooked that that blood is taken from the arteries of the taxpayer and therefore, the transfusion is not to be accomplished on dictates of political expediency but in accordance with the principles of justice and good conscience”.

Dealing with the two terms – tax gatherer (collector) and tax payer – one easily discerns the damaging undertone. The administrator should be a tax facilitator and the tax payer- a ‘tax giver’ which is better expressed in Devnagari as “KarDaata”. Over the years, this change shall contribute to providing the desired effect in the attitude and approach.

The legislature is equally to blame for the trust deficit. Frequent amendments, drafting with only the tax evaders in view are all enough to drive the tax payer crazy and lose all trust in the Government policy, which get effected in the perception of the administration. Nani Palkhiwala’s comments and observations are words of wisdom which can be ignored at a very heave price. I quote one such observation – “What is wrong with India is the pathological obsession displayed by the law-makers who frame laws only with the tax evader in mind, regardless of the enormous inconvenience and harassment to the far larger section of honest taxpayers. In these matters one must have a balanced approach and sense of proportion. A departmental store which is wholly preoccupied with prevention of shoplifting is a sure candidate for stagnation”. It has also been seen on numerous occasions that a laudable policy initiative becomes otherwise by the time it is rolled out from the North Block and percolates down to the field force.

The tax professionals have a valuable role to play in improving the reputation of the Department. Some of them have also contributed to the trust deficit and it is time about that they understand their role and responsibility in the nation building exercise.

This is not to say that all the tax payers are honest or that all the officers of the Tax Department cut a sorry figure. Tax dishonesty is injustice to the nation and should be dealt with a firm hand. This said, we have had the most beautiful and heartening experiences with a number of officers and have felt a sense of pride as tax payers more so because they responded differently and stood out. Kudos to all of these unsung heroes whose good work cannot be shadowed by any talk of trust deficit. Trust deficit may be a result of systemic and procedural issues and sometimes attributable to the ill will created by the approach of a few staff members or officers. All the same, it is imperative that the question posed by Shri Mody needs to be so done at every level in the tax administration hierarchy as a matter of personal soul searching in an endeavor to build trust.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org
7 comments on “Trust Deficit … Is It?
  1. Rajendra Agiwal says:

    Dear Vardhman,
    Very good article. You are a good orator, good writer,good presenter, good communicator. Through this article your message is clear to everyone. Whether it is legisture, tax administrator, tax payer or tax professional, if everyone is concious about his own role, responsibility, obligation,and if this works well, this deficit would certainly be set off and as a nation we could carry lot of surplus.

  2. Advocate Deepa Khare says:

    This article nicely touches the sensitive issue which is the heart of the Tax Law rather than a piece of legislation and the jurisprudence around it. I complement the Author for his remarkable effort.
    The discussion led me to further thoughts.. one way to approach the subject is ponder over it emotionally and express our anguish..Other way could be ..
    To adopt a proactive approach Which would entail looking at it objectively and articulate a comprehensive framework or mechanism providing optimum trust n harmony..This time it’s desirable to postulate aggressive objectives like creating accountability on the authorities for their actions apart from simplification n rationalisation of processes..
    The professionals are duty bound to make this contribution who are the best judges of the issue..the subject should be very vast to achieve its optimum result and may be unjustified for anyone to answer orally..The question put to Sadguru though deserves celebration for the acknowledgement, it has to kept in mind that it was untimely to think of tax at such catastrophic situation of Covid where the country rather craves for direct stimulus from the Government itself..in that sense the question was out of place..
    For the subject simplicitor “Let the legal acumen in the country strive for it..
    Amen.”

  3. Ashok Mehta says:

    Hi,

    Very nice article, one needs to accept that the Sadguru was bang on, as these are the very people who recommended though unsolicited advise of higher tax in covid 19. The legislature do not form policy these bureaucrats who fill up the minds of the legislature with utter distrust and fail to look at the larger picture. The finance minister works only on the perception and feed back from these people and they have major role to play in the agony of the tax payers which leads to distrust or a more appropriate word is hate for the bureaucrats.
    But yes like all people you have decided to give benefit of doubt to Chairman

  4. Dear Vardhaman.

    Excellent analysis of Conversation between Sadguru and CBDT Chairman Mody. At the same time you have also touched to the various areas if administered correctly can be helpful to reduced the “trust deficit”.

  5. CA G S AHUJA says:

    A very useful interaction from both side.
    Such interaction is required frequently to narrow the Trust Deficiet. After a very long time this type of clear cut voices has been raised.

  6. Milin Mehta says:

    Dear Vardhaman,

    Excellent Article.
    You have touched very important facets of tax administration. This Govt did start with lot of positive actions in clarifying and settling some parennial disputes (like capital gains Vs Business Income on Shares) but lot needs to be done. Several measures which are taken for short term objectives (like withholding of due refunds) does long term damage and creates long term trust deficit. Obsession with, someone will misuse the provision, clouds the mind of policy makers and therefore openness and transperancy in legislation is missing.

    You have touched a very important and sensitive issue and also wish to compliment Chairman CBDT for having acknowledged the fact and seeking answer for reducing the trust deficit.

    • PINGOO BHATT says:

      Good article worth a reading. Would like to mention here that the Department has done a lot by placing reliance on Automation & Technology and reducing the element of ‘discretion’ in its working

Leave a Reply

Your email address will not be published.

*