Is the IT department becoming IT savvy?

Thought I would do a piece on e-governance and take a slightly toungue-in-cheek review at the working of Information Technology in the Income Tax department!

Is the IT (Income Tax) department becoming IT savvy?

“I refuse to believe that there are only 1 lakh people in India who have an income of above 10 lakhs!” – P Chidamabram, Union Finance Minister.

Tax evasion (and the vividly named black money) has turned to be biggest bug-bear of the revenue department. It defies belief, that there are only 1 Lakh people who are in the highest tax bracket (out of the 10+ crore population)! Surely there must be someway of tracking down the tax evaders?

The revenue department projected the Annual Information Returns (AIR) as an effective tool to unearth accounted money. The AIR is filed by third party organizations – banks, credit card companies, listed organizations etc. The National Securities and Depositories Limited, which hosts the tax information network creates a PAN based ledger for each individual. Tax authorities match this information with the returns filed to see if an individual has evaded tax.

There are several crippling inadequacies in this process. The list of organization filing AIRs is limited (what about foreign travel, luxury auto dealers and property buyers?). A lot of individuals do not have or do not use their PANs for transactions (which leads to difficulty in pinpointing transactions to individuals). There is a glut of data that needs to be sifted through to ascertain evasion and the department is understaffed.

Enter Data Warehousing and Business Intelligence. [Cue Drum Rolls]

The situation presents itself perfectly for the implementation of an enterprise-wide business intelligence system. There are multiple sources of data coming in from various sources in formats that are alien to each other. De-duplication of individuals and familial classification needs to be performed by the system as there is no single means of identification (till the PAN becomes mandatory for all transactions). Data needs to be cleansed as data-entry errors are rife. Unstructured data might need to be integrated as several departments do not capture data in electronic format. Complex business rules should be factored in to conform, consolidate, aggregate, allocate, and allot incomes and expenditures to various individuals and families. Finally the revenue department needs to be able to analyze this data to identify evaders.

Fast forward to the not too far future and Hey Presto, by March 31st of every year (ok – maybe a month later), before the first person has filed his/her tax returns, the Income Tax department shall have a precise idea (within a statistically defined error limit) of your income for the previous financial year! In fact, it might even be able to tell you from which sources your money came in and through what avenues it left you! They might even exempt you from filing your returns provided you have paid your taxes correctly and on time. However, if you are an evader, beware – you could end up like a burglar without gloves at the scene of crime, leaving your fingerprints all over the place.

Is this fact or Asimov-esque science fiction? Well, the National Data Center is building a data warehouse that is expected to be functional in August 2008. The revenue department is also taking steps to bring more organizations into the AIR mandate. If all goes well, and the Indian Government gets someone as good as Marlabs to design and implement their system, then it would be more fact than fiction and signify the onset of nightmares for some!