Data Analytics to widen tax base

The fight against corruption has got a strong technological edge today. Indian tax authorities are harnessing the power of digital technologies like big data, cloud computing and advanced analytics not just to improve tax administration, facilitate taxpayer compliance, but more importantly counter frauds corruption and the menace of black money.

What started as information-technology-enabled electronic filing of tax returns soon widened to include submitting of accounting and other source data to support filings like invoices in a standard format, reconciliation of tax credits and e-processing of returns and refunds by tax authorities.

Every possible effort has been made to put all kind of data on an online platform that can be shared by all government authorities. And the implementation of a uniform goods and service tax (GST) and the setting up of a nationwide GST network (GSTN) has just made the job of the government that much easier in terms of tracking and sharing of information.

Electronic data has also helped Indian tax authorities set up an integrated data warehousing and business intelligence (DW&BI) platform termed as “Project Insight” which would allow them to detect patterns and plug leakages and thereby improve policy and operational effectiveness. The Rs 1,000 crore finance ministry flagship initiative, Project Insight, is basically an analytical tool that collects data not just from traditional sources such as banks and financial institutions, but also from social media sites to match spending patterns with income declarations.

Such matching of structured and unstructured data provides the government with a deeper understanding of how such income are concealed ((descriptive analytics), why is it done (diagnostic analytics), its impact (predictive analytics), and can be done to stop such a thing in the future (prescriptive analytics). All this will allow the government a sure-fire strategy to track and tackle non-filers of income tax and those under reporting their incomes to the competent authorities.

And that’s not all. The Ministry of Corporate Affairs and the Central Board of Direct Taxes (CBDT) have joined hands in September 2017 to share data and information on Indian companies. “They will regularly share information such as tax returns, permanent account number (PAN) and financial statements. They will also share financial statements filed by corporate entities with the Registrar of Companies (RoC), returns of allotment of shares and statement of financial transactions received from banks,’’ says a recent report by the international consultancy firm E&Y entitled “ Tax technology and Transformation’’.

Moreover, the income-tax department is working on a new system where a tax payer would be assessed by a taxman based in any part of the country. Tax authorities will no longer be restricted to their jurisdiction and also help easier electronic communication between the income tax department and the tax payer.

In July 2017, the CBDT also announced three categories of assessment like computer-aided limited scrutiny, computer-aided complete scrutiny and compulsory manual scrutiny unlike a single category of assessment earlier. The government is also focusing on the non-filers with potential tax liabilities and authorities are using data analytics from the captured data to identify persons who carried out high-value transactions but did not file a return of income.

“The CBDT has already identified some 67, 54,000 potential non-filers with potential tax liabilities for assessment year 2015-16,’’ says a finance ministry official adding that action will soon be initiated against them.

Thus, like other countries in the world is leveraging digital platforms to access huge amount taxpayers’ data, cross-checking it with other sources and running it through increasingly sophisticated analytics to single out the outliers and sharing the same information with other agencies. Hoarding black money is becoming increasingly difficult.