summary of Second Tax Administration Reform Commission

The Tax Administration Reform Commission or TARC is committee appointed by the Government of India for giving recommendations for reviewing the public Tax Administration system of India.

After submitting its first Report in June 2014 , the Tax Administration Reform Commission (TARC) headed by Dr. Parthasarathi Shome, submitted its second report to the Government on 26 September 2014. In its first report, TARC had provided suggestions mainly concerning review of taxpayer services, structure and governance, dispute resolution, Information & Communication Technology (ICT).

Second report of TARC, submitted on 26 September 2014, emphasizes on the two major areas of Indian Tax administration i.e. “capacity building in Customs administration” and “strengthening of database and inter-agency information sharing”.

Capacity building in Customs

• ► Key reasons highlighted by the Report for emphasizing the need of capacity building in Customs are the rapid growth in global trade, complex nature of supply chains, aspects of security, growing e-commerce trade amongst others.
• ► The report has also thrown light on some of the important distinguishing factors between Indian Customs administration and corresponding global practices such as revenue collection mechanism, protection of economic interests of domestic industry, protection of society, economic development etc.
• ► The shift of traditional based approach of Customs administration to international best practices will require a strategic restructuring of Customs and a change in the prevailing transactional and administrative mindset.
• ► TARC in its report suggested that Customs should not excessively focus on revenue generation and it should play a more proactive and prominent role in trade facilitation. Customs should adopt trust-based approach with the taxpayers and promote voluntary compliance
• ►Development of the Advanced Passenger Information System (APIS), in active co-operation with the Bureau of Immigration
• ► Trade facilitation and co-ordinated border management with a “single window” approach
• ► Measures for implementation of World customs Organisation’s (WCO) SAFE Framework of Standards and Authorised Economic Operator Programme (AEO)
• ► Harnessing ICT and other Technologies
• ► Investments in Non-intrusive Inspection Systems such as container scanners

 Information Exchange

• ► The report has pointed out that, so far, CBDT, CBEC, as well as other Revenue agencies have been generating and collecting information separately for own purposes and no substantial efforts have been made to integrate such information. However, in advanced tax administrations across the world, collaborative and collective mechanism is prevailing for exchange of information across agencies, for compliance and enforcement.
• ► To reduce the time as well as costs involved in duplicating efforts of collecting and processing information, TARC has recommended creation of common database following “one data, many users approach”.
• ► Key recommendations given by TARC for information exchange are as follows:
• ► Instituting a robust common framework for data and information exchange
• ► To create mutual trust, openness and willingness to share amongst
• participating agencies
• ► Common standards and taxonomy for data exchange

Other important recommenadations:

Greater capacity needs to be built in customs to counter trade based money laundering by greater use of analytics and strong co-ordination among the DRI, RMD, FIU and Directorate of Enforcement. (Section VIII.4.c)

Customs should leverage the adoption of the emerging “internet of things” by the logistics industry to real-time tracking of movement of goods across the supply chain, including to CFSs, ICDs, SEZs etc. and eliminate dilatory, costly and unreliable paper based processes. (Section VIII.4.l)

A robust audit and accountability policy must be developed to address the purpose and scope of information sharing, roles and responsibilities of dedicated teams, authorisation layers access to data, review of the safeguards put in place by an agency receiving information and the secure storage, disposal and confidentiality of the data and information.

Along with the policy, sound processes are required to facilitate the implementation of the policy. These audits must be conducted by dedicated teams who should report the findings of the audit to the DG (Systems) of the two Boards for course correction. (Section IX.5.l)

The CEIB will work under the Governing Council, recommended in the first report, to play a strategic oversight advisory role to the Governing Council on data or information exchange. The Governing Council would thus play a key role in data and information exchange between the CBDT, CBEC, FIU, CEIB, SEBI and banks, and develop strategies to reduce the incidence of non-compliance and reduce the tax gap. (Section IX.6.i)