Managing Finances Income Tax India Internal Perspective

02/22/08 Saroj Bala, NADT 1

MANAGING FINANCES

Income Tax Department


• The CBDT created out of the Central Board of

Revenue w.e.f. 1.1.1964 and placed under the Department of Revenue

• Since then, it has been responsible for collecting the revenues

• Has responsibility to collect and augment the revenues but has no authority to manage its human / financial resources

Managing Finance – The CBDT


• The disconnect between authority and responsibility was manageable till a decade back

• Today with offices at 746 locations in 530 stations and with the induction of technology, quick decision making has become imperative

• Department has to manage, develop and train 55,000 personnel for providing world class services to more than 3 cr. taxpayers

• It has to protect our revenue interests in the era of global tax competition by reducing compliance cost, developing credible dispute resolution mechanism and making evasion difficult



• The creation of Transfer Pricing/International Tax Directorates and proposed networking of the department to NDC/BCP through a three tier architecture,involves, reorientation, redeployment and training of the entire staff

• Maintaining extensive communication with taxpayers and public is a necessity

• Thus, the CBDT should be given sufficient authority to manage its financial/human resources commensurate with responsibility



That is why it is necessary to implement the recommendation of the Kelkar Committee:

“Unfortunately, CBDT has continued to function without any financial authority to guide and control affairs of Income Tax offices across the country. The Task Force is of the view that the position should be immediately rectified through adequate delegation of powers to bring in synergy and effectiveness in management functions.”


Similar recommendation made by the• Chelliah Committee (1992), • 10th Report of the Estimates Committee

(1991-92) and • Strategic Management Group (1998)

constituted by the Cabinet Secretary on the restructuring of MoF

Recommendation of Other Committees


A sound financial management system has to address the following issues :

1. The quantum of financial resources

required for efficient management Vesting powers of Dept/Ministry in the

Chairman, CBDT3. Putting in place the Financial Advisory

system for CBDT4. Delegating more powers to the HoDs in

view of the needs of different functional authorities


1.54894579591999-2000

0.5813602300912006-07

0.7412271652082005-06

0.8611381319182004-05

1.0010501050882003-04

1.18984830882002-03

1.44993691982001-02

1.36929683052000-01

1.83852466001998-99

PercentageTotal cost Total collection

Financial year

LOW AND DECREASING COST OF COLLECTION(Rs. Crores)


Need for augmenting the quantum of Financial Resources

• Globally the cost of collection ranges from 1% to 3% of the net revenue collection.

• In India this is below 0.6% with a declining trend

• Insufficient finances leading to shortage of manpower/infrastructural facilities:• Lack of sitting space / place for records • Even the books, forms and stationery are not

available for want of budget allocation/ delegated powers to incur expenditure


Facilities for taxpayers & professionals are even worse

In view of these Kelkar committee recommended that CBDT be provided more financial resources and given sufficient authority to manage these

Wanchoo Committee rightly remarked:‘Where efficiency means more money, outlay on personnel should rightly be considered an investment and not expenditure’

Need for augmenting the quantum of Financial Resources


Need for increasing budgetary allocation to at least 1% of revenue collection

• For providing more facilities to the officials and better services to the taxpayers

• would result in reduction of cost of compliance and substantial increase in the tax collections

• Thus, a minimum of Rs.2300 cr. (1% of 2.3 lac crores) should be allocated to CBDT, for F.Y.07-08 instead of Rs.1300 cr


Need for vesting powers of Department/ Ministry in the Chairman, CBDT

• CBDT has not been assigned any powers of the Ministry/Department

• Proposals are examined by F.A. and put up to Revenue Secretary for approval

• CBDT has no role in its expenditure budget preparation exercise

• Consequently, the vision, mission and strategies of CBDT are not reflected in its expenditure budget

• Leading to a disconnect between the strategic priorities of CBDT and the resource allocation to its field formations


Need for vesting powers of Department/ Ministry in the Chairman, CBDT

• These issues could be resolved if:

• CBDT is declared a Ministry/Department for the purposes of DFPR

• Proposals of field are examined by Chairman, CBDT in consultation with F.A.

• CBDT to further redelegate financial powers to the HODs based on functional requirements


Advantages….

• Authority to spend and responsibility to collect will go together in sync.

• Will free the Revenue Secretary from day-to-day mundane affairs/unimportant issues

• His experience, knowledge and wisdom can be gainfully utilized in:• addressing the strategic issues• responding to global changes in tax policy• safeguarding India’s revenue interests• Coordinating with other economic Ministries


Proposed mechanism-1

• Powers of the Revenue Department/ Ministry under the DFPR be delegated to/vested in the Chairman, CBDT

• Method already being followed by MHA for delegating power to DGs of Paramilitary Forces.

Also in line with the recommendation of the Kelkar Committee which observed…

• ‘that it is the declared policy of the Government to encourage Ministries to delegate powers to subordinate offices’.


Proposed mechanism-2

• To create two independent Departments headed by respective Chairman:• Department of Direct Taxes• Department of Indirect Taxes

• They would be ex-officio Secretaries reporting directly to the Finance Minister

• This has been recommended by the Strategic Management Group (1998) constituted by the then Cabinet Secretary


A FINANCIAL ADVISORY SYSTEM FOR CBDT

• This system can be created on the following lines :

• A post of Commissioner Finance/F.A. can be created to assist the CBDT for RE/BE projections, allocation of resources, further delegation of powers, examining proposals for expenditure sanctions etc;

• The Commissioner Finance/F.A. can be assisted by a DFA and AFAs who would be incharge of different zones

• Each CCIT(CCA) can be provided assistance of an officer of the level of A.F.A.


Delegating more powers to the Heads of Department

• DFP Rules stipulate that Ministries should be encouraged to delegate powers to subordinate offices to match their requirements

• A meaningful review has not been carried out for several years

• There is a need to enhance the existing delegation of financial powers to HODs under the DFP Rules…….


Delegating more powers to the Heads of Department

• Limits for Repair & Maintenance Work through CPWD in govt. buildings needs to be increased from Rs. 5.00 lakhs to Rs. 15.00 lakhs

• Sufficient budget allocation on behalf of the Department should also be placed at the disposal of Ministry of Urban Affairs

• powers for sanctioning air travel by non-entitled employees should be further delegated from Chairman to CCAs

• Training heads be empowered to sanction air travel costs of non-employees for govt. duty

• The procedure for printing works to be executed locally needs to be simplified


“ Presently, the most excessive centralization of powers is seen in the matters of finance…It would be more appropriate if the Finance Ministry approves the overall budget for different Ministries and thereafter allows them sufficient flexibility to manage the financial resources in the most productive manner, irrespective of various Heads under which it is spent…. The dual control over the F.A.s should also be removed and they should work under the control of administrative Secretaries as real financial advisors in respect of delegated financial powers”

Need for greater delegation/decentralization was stressed by the 5th Pay Commission :


To conclude…..

• CBDT should be given financial delegation, responsibility and authority so that it is made more accountable and is enabled to meet the challenges of augmenting revenue mobilization to usher India into the category of fully developed nations by 2020

Technology

Managing Finances Income Tax India Internal Perspective