[Opinion] Digital Transformation of Tax Administration

Pritin Kumar, Dilip Sutar & Dhrumin Sanghvi – [2022] 143 taxmann.com 189 (Article)

Tax administration has undergone a complete transformation in the past few years. With businesses going digital, it was only a matter of time before tax administrations adopted technology and transformed the way they function. The digitalisation of tax administration is a global phenomenon, and India is in the thick of things.

The present era has ushered in new age technologies such as artificial intelligence/machine learning, robotic process automation (RPA), cognitive computing, blockchain, etc. These technologies have transformed (in some cases disrupted) businesses in a big way and created new opportunities in terms of digital business models and doing things smartly. In the same way, tax administration has also been moving towards automation and digitalisation at a significant pace.

The OECD Forum on Tax Administration published a discussion document in December 2020 titled ‘Tax Administration 3.0: The Digital Transformation of Tax Administration’. The discussion paper set out a vision for the digital transformation of tax administrations, under which taxation becomes more of a seamless and frictionless process over time. The key attributes of Tax Administration 3.0 identified in the paper are:

• Data-driven
• Event-based, detailed and real-time data
• Enables validation and automation
• Enables assured data
• Interoperable ecosystems
• Enables international co-operation

An update on the seven actions undertaken pursuant to the discussion paper, was published earlier this year.

In terms of the building blocks identified in the discussion paper, it can be said that India is doing pretty well when it comes to areas such as digital identity, taxpayer touchpoints, data management and standards and new skill sets. The building blocks where the Indian tax administration can focus on are around integrating tax rules with taxpayer systems and governance frameworks.

Overall, when one considers adoption of technology within the context of tax in India, in relation to use of technology in tax compliance, processes and reporting, it can be said that the Indian tax administration has typically been ahead of taxpayers. For example, earlier, income-tax and indirect tax returns were filed in paper form, and reconciliations around TDS and input tax credit were carried out in Excel. Today, there has been a paradigm shift in the use of technology for filing returns and claiming credits. This digital tax transformation has been possible only because of the crucial role played by the Indian tax administration.

On the direct tax side, 2005 was a key year when the income-tax department introduced the utility for filing e-TDS returns; subsequently in 2006, income-tax return filing utilities for filing returns were introduced. While there were the normal teething issues initially on adoption of technology, but today the TDS and return filing utilities have been working seamlessly. There have been continuous enhancements in the return filing process over time, and one gets pre-populated returns from the income-tax department – a transformational situation no doubt.

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