In an exclusive conversation with CXO News & APAC News Network, Dr. Megha Bhargava, IRS, Joint Commissioner Income Tax, Mumbai, Ministry of Finance elucidates how Income Tax is leveraging new-gen technologies while elaborating on the functioning of Samarpan.
How are new-gen technologies being leveraged in the income tax department? Please illustrate with a few use cases.
The Income Tax Department has been a pioneer in introducing new-gen technologies in its functioning and can boast of being one of the most tech-savvy among all government organizations.
E-filing 2.0 is one of the transformational digitalization initiatives introduced by the Department to ease taxpayer compliance. Pre-filled income tax returns Taxpayer information summaries and Annualised Income statements have made the filing easier for the taxpayer and also ensured that all the financial transactions have been duly accounted for.
Computerized processing of IT returns has brought down the return processing time to the bare minimum resulting in expeditious release of refunds.
The department receives a lot of information from financial institutions including banks, mutual fund companies, stock exchanges, property registrars, etc. Artificial intelligence is being used to compare the data available with the department with that shown in the IT returns and identify deviations for further assessment and scrutiny. This not only leads to the widening of the tax base by ensuring that all the financial transactions are duly reflected in the IT returns; but also gives an opportunity for the taxpayers to correct any duplicate or wrong data being made available by the concerned financial institution.
‘Project Insight’ has been introduced with the primary objective of curbing tax evasion by doing a 360-degree profiling of the taxpayer using modern technologies for data mining, research, and analytics. This platform is being used to identify high-risk non-filers, select cases for scrutiny, and identify cases of possible tax evasion.
Very recently, the Central Board of Direct Taxes (CBDT) has declared the launching of the Taxnet 2.0 project aimed at providing seamless network connectivity, facility management services, and video conferencing solutions to the Income Tax Department. There will be enhanced security features utilizing state-of-the-art technology to protect sensitive data and ensure privacy.
With so many global tax agreements, what are the best practices followed globally in tax administration and how can they be replicated in India?
The 2015 OECD Report on Addressing the Challenges of the Digital Economy delved into three primary strategies for addressing direct tax challenges stemming from the digital economy. The first strategy involves establishing a new nexus based on significant economic presence, which would redefine the criteria for taxing rights based on where economic activities are substantially conducted. The second strategy is the imposition of a withholding tax on certain digital transactions, aimed at ensuring that taxes are collected at the source of the transaction. The third strategy is the introduction of an excise tax or levy specifically targeting digital services to ensure they contribute fairly to the tax system.
The updated OECD Transfer Pricing Guidelines, released on 10 July 2017, seek to better align transfer pricing outcomes with the principle of value creation. This means that profits are to be allocated to jurisdictions where substantial economic activities and value-generating functions are performed. This alignment aims to ensure that transfer pricing practices reflect the economic realities of global business operations.
Italy introduced a web tax through its 2018 Finance Law, which came into effect in January 2019. This 3% tax targets internet services that are characterized by minimal human intervention and a significant use of technology. It applies to services provided by both Italian resident entities and non-resident entities to local business recipients. This measure aims to capture revenue from digital services that traditionally fall outside the scope of conventional tax frameworks.
In France, a 2% tax on advertising revenue earned by platforms, whether resident or non-resident, that broadcast free or paid videos online—such as YouTube or Netflix—was implemented at the beginning of 2018. This tax seeks to capture a share of the revenue generated by digital advertising, which is increasingly shifting away from traditional media to online platforms.
The United Kingdom’s Diverted Profit Tax (DPT) is designed to establish a clear connection between the entity generating income and the location where the income is generated. This tax aims to prevent profit shifting by multinational companies and ensure that profits are taxed in the jurisdiction where the economic activity creating the profits occurs.
In April 2018, the UK proposed a specific royalty withholding tax targeting IP royalties paid by non-UK resident entities to related parties in low-tax jurisdictions. This measure is intended to prevent the erosion of the UK tax base through the shifting of IP-related profits to jurisdictions with lower tax rates.
India introduced a 6% equalization levy in 2016, which requires resident taxpayers to withhold tax on any Business-to-business (B2B) payments made to non-residents for online advertising services. This levy is aimed at digital business models like Google and Facebook, ensuring tax neutrality among different business models irrespective of their physical presence within the taxing jurisdiction. The equalization levy also seeks to provide greater clarity on the characterization of payments for digital services.
In addition, India revised the concept of ‘business connection’ in its 2018 Finance Act to include significant economic presence. This amendment expands the scope of what constitutes a taxable presence in India, reflecting the changing nature of global business and digital commerce.
How much role technology can play in promoting tax equity and resolving international tax conflicts?
Implementing digital methods for dispute resolution can significantly expedite the resolution process. This approach not only helps in speeding up the settlement of disputes but also contributes to raising tax certainty. Enhanced tax certainty ensures that taxpayers have a clearer understanding of their tax obligations, which in turn fosters compliance. Furthermore, digitalization aids in strengthening the capacity of tax administrations, enabling them to handle disputes more efficiently. By streamlining tax compliance, digital dispute resolution reduces the administrative burden on both taxpayers and tax authorities, leading to a more effective and transparent tax system.
Combining and sharing resources through the adoption of common technical and administrative standards can lead to significant improvements in the efficiency of tax administration. By pooling resources, tax authorities can benefit from economies of scale, reducing costs and enhancing their ability to invest in necessary technologies. This collaborative approach not only improves the overall capacity of tax administrations but also ensures that they are equipped with the latest tools and technologies required to manage and resolve disputes effectively. Standardization also facilitates better coordination and cooperation among different tax jurisdictions, leading to more consistent and predictable tax outcomes.
Developing a comprehensive digital dispute management mechanism is crucial for enhancing the capabilities of tax administrations. This involves utilizing the vast amounts of data obtained through taxpayer reporting, big data mining, Common Reporting Standards (CRS), and Country-by-Country Reporting (CbCR). Online training programs can be implemented to ensure that tax officials are adept at using these data sources effectively. Making tax laws and treaties easily accessible to taxpayers promotes transparency and compliance. Additionally, sharing best practices or templates for reaching advance pricing agreements can streamline the process of dispute resolution. Incorporating artificial intelligence to answer frequently asked questions regarding treaty interpretation can further enhance efficiency.
Facilitating dispute resolution through the creation of online portals, similar to the litigate system in Singapore, can greatly assist competent tax authorities in their Mutual Agreement Procedure (MAP) negotiations. These portals can provide a centralized platform for the exchange of information and documents, making the negotiation process more transparent and efficient.
Can you please elaborate on the functioning of Samarpan?
Samarpan is a non-profit organization dedicated to improving educational and health outcomes in government schools in rural India. Our mission is to create a brighter future for children by addressing critical issues that hinder their growth and development.
We primarily operate in government schools located in rural areas of Madhya Pradesh, Rajasthan, and Maharashtra. Our focus is on delivering impactful programs that address the unique challenges faced by these communities.
Our major initiatives include:
Menstrual Hygiene Management:
Menstrual hygiene is often a neglected issue, leading to girls missing school or even dropping out entirely. Through our Menstrual Hygiene Management initiative, we provide reusable sanitary pads and comprehensive menstrual health education. This program has led to a significant increase in school attendance and a boost in the confidence and self-esteem of young girls. I vividly remember a session where a young girl expressed how she no longer felt ashamed during her periods and was able to participate fully in school activities. Her story, among many others, underscores the vital importance of this initiative. The provision of reusable sanitary pads not only ensures that girls can attend school without interruption but also promotes environmental sustainability by reducing waste.
Water, Sanitation, and Hygiene (WASH) Initiative:
Another project that stands out is our WASH initiative in the tribal remote villages of Kota, Rajasthan. This project addresses the critical need for clean water and proper sanitation in these areas. The joy and relief on the faces of the children and their families when they received access to clean drinking water and sanitary facilities were incredibly moving. This project not only improved their health and hygiene but also instilled a sense of dignity and well-being in the community. Clean water and proper sanitation are fundamental to a healthy life, and by ensuring these basic necessities, we are helping to build a foundation for a brighter future.
Solar Electrification:
This project exemplifies our commitment to sustainability and innovation. By providing a reliable source of electricity through renewable energy, we’ve enhanced the learning environment for students and reduced the school’s carbon footprint. The introduction of solar power has opened up new possibilities for integrating technology into education, making a lasting impact on the school’s future. With reliable electricity, students can now access digital learning resources, participate in evening study sessions, and benefit from improved classroom facilities.
In conclusion, Samarpan’s approach to designing and implementing sustainable strategies in health and education is multifaceted and deeply rooted in community engagement. By addressing immediate needs while also building local capacity, leveraging technology, and fostering partnerships, we create lasting, positive change for children in India. Our work is driven by a belief in the potential of every child and a commitment to creating environments where they can thrive. Through our initiatives, we aim to empower communities, uplift lives, and pave the way for a better tomorrow.
How do you manage between your responsibilities as a bureaucrat and managing Samarpan?
If you have a deep desire and willingness to do something, time can never be a constraint. Passion is a powerful motivator that transcends the limitations of time. When your passion drives you, you find ways to make it work, regardless of how demanding your primary job may be. You learn to navigate through challenges and find innovative solutions to balance your responsibilities.
While my job as an IRS officer helps me contribute towards nation-building on a much larger scale, my work at Samarpan gives me a chance to work directly at the grassroots level. In my role as an IRS officer, I play a part in shaping policies and implementing systems that affect millions of people. This macro-level impact is incredibly fulfilling as it allows me to be a part of the nation’s progress and development.
Samarpan, on the other hand, offers a different kind of fulfillment by allowing me to make a tangible difference in the lives of people by directly engaging with them. Whether it’s seeing a young girl confidently attending school because of our menstrual hygiene program or witnessing a community gaining access to clean water for the first time, these moments of direct impact are deeply rewarding. They provide a sense of purpose and a reminder of the profound changes that can be achieved through dedicated grassroots work.
Balancing both responsibilities requires careful time management and prioritization. There are days when it feels overwhelming when the demands of my official duties and my commitments to Samarpan seem almost impossible to juggle. However, the satisfaction of seeing a positive change keeps me motivated. The gratitude in the eyes of the children we help, the improved living conditions of the communities we serve, and the overall sense of progress fuel my determination to keep going. It is this duality of impact—macro through my IRS role and micro through Samarpan—that makes the effort worthwhile.
I joined the Civil Services to work for the people of my country, and Samarpan aligns perfectly with this mission, amplifying my efforts to make a difference. The organization enables me to extend my service beyond my official duties, reaching out to those who need it the most in rural and underserved areas. This alignment of purpose is what keeps me grounded and driven, despite the challenges that come with balancing multiple roles.
Samarpan reminds me daily why I chose this path and reinforces my commitment to public service, no matter how demanding the journey. It serves as a constant source of inspiration and a daily affirmation of the values that led me to civil service. The smiles on the faces of those we help and the tangible improvements in their lives reaffirm my dedication to this work. This synergy between my professional and personal endeavors not only enriches my life but also enhances my capacity to serve the community effectively.
Alice Purty & Rajneesh De, APAC News Network
(Views expressed by the interviewee are purely personal)
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