What can Income Tax payers in India expect ? - Musings of a ‘Silver Certificate’ taxpayer

 Indian salary-earners, especially those paying highest per cent of income in taxes have very little voice and aren’t expected to ask for much in return for their tax rupees.  Most western countries where I have been a taxpayer for the past couple of decades had complex structures of direct (individual Income) and indirect (sales and service) tax structures, but for this writeup I want to focus on individual income-tax. 

In western societies, the concept of “tax dollars at work” and “accountable to taxpayers” is taken rather seriously with governance visible and accessible starting at the lowest levels of government – be it local schools, roads or public health service. While high net-worth taxpayers aren’t provided special accommodation, those paying higher taxes do seem to have a greater voice. For example, in the US, school districts with residents paying higher property tax are better governed, with facilities commensurate with their budgets that are clearly visible and accountable to local taxpayers who engage in administering school boards.

The accountability at the top of the administration, like a senator or congressman (equivalent of our MPs and MLAs) is equally transparent and visible. Years ago, when I had a question on my pending naturalization application, I shot an email to the local senator, whose aide called me within a few days to say they had initiated a “congressional inquiry” with the concerned government department. The aide called me back after a couple of weeks to confirm that my issue was indeed resolved. These instances of “taxpayer’s dollars at work” are routine and expected. Now, imagine you sending an email to your local MP or MLA about an issue, and expecting a response.

Fast forward to “Digital India” where I now find myself after relocating to be around for aging parents. After moving back, I took up a global role with a multinational. For my contribution to the economy, the Income Tax department has been awarding me with a “Silver Certificate of Appreciation” for the past couple of years. For those curious, the Government of India, in its infinite wisdom, issues those paying an annual tax of Rs 1-10 lakh a bronze certificate, and to those pay between Rs 10-50 lakh a silver-certificate; and those paying taxes between Rs 50 lakh and Rs 1 crore a “gold” one. 

I scratch my head wondering about government services “silver” taxpayers like me can expect in return for the lakhs I pay in IT, property-tax, and GST. Our son, like millions of other kids, goes to a private school with no government aid. I don’t expect to patronize the overstretched public health system, thanks to my medical insurance and corporate health-package. This leaves the basic public services that government is expected to provide.

For instance, after the street in front of my home was dug up for months for some public drain-work, I sent several tweets, emails and calls to the local counselor’s office that went unanswered as to be expected. Only an impending local election miraculously speeded up the work.

And then there is a matter of a long pending issue with a land registration that my father had been struggling with. After returning to India, I took over the matter and filed a Writ Petition in Karnataka’s High Court. It has been nearly two years since that judgement and the casefile has been stuck in the desk of some Babu in the state’s revenue department. Several RTI requests have gone into a black hole. Leave alone the equivalent of a congressional inquiry, I probably must bribe someone-known-to-someone in the Revenue Department to even get an appointment to meet a local official, or to know the status of the pending file.

As a salaried taxpayer, I cannot avoid or evade lakhs in direct-tax payments to government coffers. In the land of Mahatma Gandhi, I guess the government officials expect taxpayers like me to consider direct tax payments to be yet another “selfless action, as a source of strength.” But quoting Gandhi again, “It is humanly impossible to be selfless. As a matter of fact, human beings are inherently selfish.” And that’s perhaps why my expectations of expedient government service are not unreasonable.

Originally published in The Hindu Businessline 

Tax time : big brother is watching with big data and analytics

It is tax-time in the US and most taxpayers fall into two camps: anxious that we will have to fork out a pretty penny to Uncle Sam or glad that we are getting a refund back. And of course it is not just Uncle Sam but his poorer cousins in states and counties that have an eye out for our tax returns. Most of us have a favorite tax-time story. Here is mine.

In my previous job, I was a technology-strategy consultant and for a few years, I opted to be road warrior rather than frequent relocator. I did this for a few reasons, one of which was to minimize my tax-filing burden. Mind you, minimizing my tax filing burden is not the same as minimizing tax burden; which meant I had a home and base in a single city, county and state. I mitigated the need to file my tax returns in multiple states and counties. Of there were other reasons for this move besides simplifying my tax filing status in a home base. I had a “home” to return to during weekends and between project engagements, a semblance of being grounded while being constantly mobile. For simplicity, let us call my home state StateA.

During my consulting days, I would travel to consult with clients located in multiple cities across states, traveling to more than half-dozen states in a year. This is not atypical for a road warrior consultant. And like many good citizen, I have been regular with my tax filings especially since much of my income comes from regular earnings where the employer withholds taxes payable to the feds and states. Some years I get the excess tax withheld as a refund. Therefore, I was really surprised when I received a letter in the mail from the attorney general’s office in StateB last week.

The letter started by saying I owed income tax payable to StateB. And the state’s attorney general had handed my case over to the official collections agency to come after my “unpaid state income tax”. I did a double take and re-read that letter. Sure enough it looked official, and had the last four of my social security number correctly marked. And curiously, it had been mailed directly to my new address in StateC where I now reside.

I called the state attorney general’s office who directed me to the collections agency. The nice lady at the collections bureau explained the reason for the call. I had filed my federal returns for 2009 with an address in StateB. This also confirmed my hunch. While on the road during 2010, I had a month long engagement in a large metro in StateB. During tax filing time, I made a simple mistake: I gave my temporary hotel address in StateB as the mailing address in my federal and StateA tax returns. No big deal; right?

That was in 2010 and forgotten as soon as I got my refund from the federal government and StateA. About 3 years later, StateB not only figures out my mistake but tracks my whereabouts and sends me a collection notice.

Though the taxpayer in me is not amused, the Enterprise Architect in me is fascinated: IRS is sharing tax filing data with State agencies (nothing new here. Apparently they have been doing it since the 1920s (link)) The fact that State revenue agencies are using data analytics to churn through the volumes of data from federal returns and identify people who have not filed returns in the state. And turning those details over to a collections agency hoping to generate revenue. Now, this is fascinating.

Designing complex systems that take disparate data sources – from federal and state tax filings - and analyze patterns, as in my case analyze discrepancy in filing address. Marking and reconciling them, gathering additional data, current address and whereabouts as in my case and generating collection bills. This is by no means a trivial task. Especially when you add Federal, State and local data privacy laws, regulations for data use and hundreds of other use cases to consider. Nett return, potential revenue from additional taxpayers being netted! The net may also catch a few taxpayers like me making “genuine” mistakes that can be reconciled; but that is the cost of doing business I guess.

My story had a happy ending. The nice lady at the collections agency asked me to fax over my 2010 StateA tax returns along with my W2 for the year and promised to forward them over to the state’s tax department to mark my account “closed”.  For me, it is fingers crossed, I guess.

I guess there is a lesson for others trying to beat the system: Beware, big brothers are watching, armed with Big Data and Analytics!