The companies in India sell you the goods, earn their money, and pay the taxes. These taxes are paid to the government in two forms. The Direct tax that is income tax or corporate tax is levied on the income of the company. Other is the indirect tax now known well as the Goods and Service Tax or the GST and Customs duty.
These taxes levying and collection for direct tax is done by CBDT (Central Board for Direct Taxation), and for indirect tax, it is done by CBIC (Central Board for Indirect Taxation and Customs).
Finance Ministry launched DIN (Documents Identification Number) in order to facilitate communication with CBDT and CBIC. Finance Secretary has termed it a new chapter of transparency and accountability. Is DIN a reform or yet another cumbersome document generating number? We will discuss this here.
The Document Identification Number
The process of levying and collection involves a lot of communication. If a company pays more tax than a legitimate amount, it asks for a refund. If it pays less than the legitimate value, the government (tax officials) can tell the company to pay more amounts. Sometime a company may declare its taxable income so low that it appears fishy to the tax officials. Tax officials may issue a notice to the company.
So one may see this communication would involve a lot of documents in the form of returns, appeals, letters, notices, order and much more. DIN mandates the government tax officials to tag a unique DIN with each document to keep a track.
On October 1, 2019, CBDT launched its 10 digit DIN. It extended to CBIC documents on November 8, 2019, which launched its own 20 digit DIN.
To understand the need for DIN, we need to know how India's tax collection remained an issue with businesses, popularly called 'the tax terrorism.'
The Tax Terrorism
From time immemorial, Indian companies complain of 'tax terrorism.' Tax terrorism means harassment of companies and their authorities by tax officials. Tax officials in the country have enormous powers. Sometimes, they do not even have the authority, but they may still cross the line and remain untouched.
Most businesses complain that tax officials ask bribes, and they harass if not yielded to their demands. The officials threaten to falsely frame in a tax evasion case, or disrupt business in the name of raids. It does not matter if a company is clean; they file the 'charge sheet' and then ask you to appeal against it. In any way, it deteriorates income and reputation earned through the business.
Tax authorities are not solely to blame. The higher authorities set unrealistic targets. Tax authorities have no option but to fulfill the target and ask the businesses to appeal against it. In fact, tax departments in India lose as much as 77% appeal cases!
The recent suicide of VG Siddhartha, owner of Café Coffee Day, sparked a new row. Other entrepreneurs like Kiran Majumdar Shaw (Biocon) and TV Mohandas Pai supported the allegations of tax terrorism quoted by Siddhartha in his suicide note.
The DIN would not solve the tax terrorism in entirety. However, it aims at making lives a bit better for entrepreneurs.
The Need of DIN
Though tax terrorism is evident, it has many forms. Nevertheless, one thing that is almost omnipresent in all tax cases is the document. No authority can ask you with more tax without notice. No one can arrest you without an explanatory letter for a tax fraud case. This is where innocent businesspersons can be saved from harassment.
In some cases, even when the deadline to send notice is crossed, the officials tend to send backdated notices. Some other cases have seen some random tax official sending notice when he is not authorized.
This is where DIN comes into play.
Document Identification Number (DIN)- The Saviour
So that a business is not harassed, tax officials have to be held accountable. This can only be ensured if there is enough transparency between government, tax department, businessmen, and the tribunals.
DIN does just that. DIN is a unique number that will be mandatorily tagged with each document issued by the government CBDT and CBIC. Manual document generation is no more allowed for tax purposes.
With a proper number for each document, taxpayers may now verify the document online. The sender, the date, the purpose will all be available online. Assesses will be able to track the documents and hold the officials accountable if communication remains unanswered.
Apparently, it will create a digital directory and maintain a proper audit trail of all the communications about assessment, appeals, orders, exemptions, inquiry, investigation, verification of information, penalty, prosecution, and rectification issued.
This would prevent tax officials from bombarding questionable ‘show cause notices’ and ‘charge sheets’ because now they are in full public view.
The government has an intent to ease the doing business. It can be seen from its announcement to set up a faceless system between the assessor and the assessee. DIN is the step in this direction.
Though the impact is yet to be seen, this looks like a reform that will prevent unnecessary harassment and 'frauds' in the name of tax collection done by the tax officials, at least, on the document's front.
Hope this transparent system fixes the accountability of officials and helps Indian wealth creators and not become another mismanaged pile of data. No country can run without entrepreneurs, and the honest ones must be supported and encouraged.