The Central Board of Direct Taxation (CBDT), a wing of the Ministry of Finance, has initiated disciplinary proceedings against some Indian Revenue Service (IRS) officers for a report they submitted to the government recently. The officers are not corrupt, nor did they abuse any Minister or any functionary of the government. So, what was their crime?
A group of 50 IRS officers thought it their duty to help the government in this hour of crisis. They prepared a report titled ‘Fiscal Options and Response to Covid-19 Epidemic’, or FORCE, and submitted it to the government. The IRS Association’s Twitter handle and website carried the report. In order to tide over the financial crisis, the report suggested raising the highest slab rate to 40% for income above ₹1 crore or re-introducing the wealth tax for those with wealth of ₹5 crore or more; providing an additional one-time cess of 4% on taxable income of ₹10 lakh and above for COVID-19 relief; providing tax relief for sectors hit hard by COVID-19; and re-introducing the inheritance tax.
These suggestions are nothing new. Inequality is on the rise everywhere. This is bound to be so, as Thomas Piketty showed, as long as r (rate of return on capital) is greater than g (rate of growth in the economy). The views of the officers can be taken to be unexceptionable on merits. So, what brought the wrath of the government then?
Generalist versus the specialist
The Ministry of Finance is always headed by an Indian Administrative Service (IAS) officer. The Revenue Secretary, the Expenditure Secretary and the Finance Secretary are all drawn from the IAS despite the fact that they have little experience in handling the economy. Starting as local administrators they later hold top posts in the Ministry of Finance. On the other hand, the CBDT is managed by IRS officers with rich field experience. There were suggestions time and again that the Chairman of the CBDT should be of the rank of Secretary to the Government of India. The government raised the status of the Chairman to that of a Special Secretary and not a full-fledged Secretary. At the time of the Budget, it is an IAS officer who accompanies the Finance Minister for the press briefing. The IRS officer is totally invisible, despite the Budget being the handiwork of hard-working IRS officers.
Senior IRS officers know the intricacies of taxation, whether national or international. On the other hand, IAS officers know little about base erosion and profit sharing, transfer pricing, etc. And yet Revenue Administration is not in the hands of an IRS officer, but an IAS officer. The result is that the income tax law is a mess. In the past 60 years, the income tax law has never been mauled in a period of 12 months as it was in 2019-20. The Budget presented on July 5, 2019 has become irrelevant now as all the provisions were altered radically within six months. In September 2019, the Finance Minister called a press conference and announced radical changes in corporate taxation. Then followed press releases from the CBDT making alterations in fiscal laws. Then there was an ordinance. Finally the due dates for filing the returns, fixed by the statute, were changed. The financial year was practically extended from March to June. The Income Tax Act is a national disgrace, said Nani Palkhivala. Tax publishers are not able to bring out a proper single volume of income tax law. The blame for this squarely rests on the IAS officers who are above the IRS officers.
Occupying top posts
It is mostly IAS officers who are made Governor of the Reserve Bank of India, Chief Election Commissioner, and Comptroller and Auditor General of India. IRS officers are rarely allowed to occupy top posts. And yet, a brilliant IRS officer became the Chairman of the Insurance Regulatory and Development Authority against all odds. Another became Chief Election Commissioner and brought out a classic book on democracy in India. Yet another was chosen by the Prime Minister himself to head the Central Vigilance Commission.
The IAS maybe the ‘steel frame of India’ but the steel frame has been rusting for quite some time. Can the IRS be given their due and be allowed to play a normal role? The present controversy reignites the debate on the generalist versus the specialist.
The FORCE report is sound. The IRS officers who wrote it deserve admiration and not admonition.
T.C.A. Ramanujam is former Chief Commissioner of Income Tax
