Parthasarathi Shome Committee (Tax Administration Reform Commission)

The Tax Administration Reform Commission (TARC), popularly known as the Parthasarathi Shome Committee, was constituted by the Government of India in 2013 to examine the country’s tax administration system and suggest reforms. The commission focused on improving the efficiency, effectiveness, transparency and taxpayer-friendliness of tax administration while bringing it closer to global best practices.

The commission was headed by Dr. Parthasarathi Shome and functioned as an advisory body. It examined issues related to tax policy, taxpayer services, human resource management, technology, dispute resolution, tax governance and compliance management. 

What is the Tax Administration Reform Commission?

Tax Administration Reform Commission (TARC) was established through a Government of India notification in August 2013. Its formation had been announced by the then Finance Minister during the Budget session of Parliament.

The primary mandate of TARC was to:

• Review the application of tax laws and tax policies in India.
• Examine Indian tax administration in comparison with global best practices.
• Identify structural and administrative weaknesses.
• Suggest measures to improve the efficiency and effectiveness of tax administration.
• Improve taxpayer services and voluntary compliance.
• Strengthen the use of information and communication technology (ICT).
• Improve tax governance, human resource management and dispute resolution.

Parthasarathi Shome Committee Objectives

Parthasarathi Shome Committee aimed to reform India’s tax administration by making it more efficient, transparent, taxpayer-friendly and aligned with global best practices.

• Improve tax administration and make it more efficient and effective.
• Strengthen taxpayer services and facilitate easier tax compliance.
• Reduce tax disputes and litigation through better dispute-resolution mechanisms.
• Promote voluntary tax compliance and expand the tax base.
• Increase the use of technology and ICT in tax administration.
• Strengthen human resource management and professional specialisation.
• Improve coordination between CBDT and CBEC/CBIC.
• Promote research-based tax policy formulation and impact assessment.
• Improve transparency, accountability and governance in tax administration.
• Strengthen systems for revenue forecasting and tax collection.

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Major Observations of Parthasarathi Shome Committee

Parthasarathi Shome Committee identified several structural, administrative and technological weaknesses in India’s tax administration that affected efficiency, compliance, revenue collection and taxpayer services.

• Lack of coordination: There was inadequate coordination between the CBDT and CBEC, resulting in fragmented tax administration.
• Role of Revenue Secretary: The committee observed concerns regarding the position of the Revenue Secretary in the tax administration structure, particularly as the post did not necessarily require specialised tax expertise.
• High tax litigation: A large number of tax disputes and pending cases placed a significant burden on the tax system.
• Low recovery of tax arrears: The committee noted the poor recovery rate of outstanding tax arrears, indicating weaknesses in tax collection and enforcement.
• Seniority-based appointments: Appointments to senior positions in tax administration were largely influenced by seniority rather than specialised knowledge and expertise.
• Revenue target pressure: Tax officials faced pressure to meet externally imposed revenue targets, which could affect the quality of tax administration.
• Underutilisation of technology: The potential of Information and Communication Technology (ICT) was not being fully utilised for improving tax administration and taxpayer services.
• Weak research capacity: There was inadequate research-based analysis and impact assessment to support tax policy formulation.
• Vigilance concerns: The committee highlighted the issue of anonymous vigilance complaints against tax officials and the need for a more effective mechanism to handle such complaints.
• Need for taxpayer-centric administration: The existing system required greater focus on taxpayer services, voluntary compliance, transparency and ease of compliance.

Parthasarathi Shome Committee Major Recommendations

Parthasarathi Shome Committee proposed wide-ranging reforms to make tax administration more efficient, transparent, technology-driven and taxpayer-centric.

• Taxpayer services: Create a separate taxpayer services vertical under CBDT and CBIC and allocate at least 10% of the tax administration budget to taxpayer services.
• Pre-filled returns: Provide pre-filled tax returns to simplify tax compliance and reduce errors.
• Human resource specialisation: Promote specialisation among IRS officers and allow lateral entry of experts into tax administration.
• Tax administration structure: Recommend abolishing the post of Revenue Secretary and assigning relevant functions to the tax boards.
• Tax Council: Establish a Tax Council for making recommendations on tax policy.
• Governing Council: Create a Governing Council to oversee the functioning of the tax boards.
• Integration of tax boards: Recommend greater integration, including complete integration of CBDT and CBEC, to improve coordination.
• Dispute resolution: Establish dedicated dispute-resolution mechanisms and introduce pre-dispute consultation before issuing tax demand notices.
• Retrospective taxation: Avoid retrospective amendments to tax laws to provide greater certainty to taxpayers.
• PAN as CBIN: Develop PAN into a Common Business Identification Number (CBIN) for wider use across government departments.
• GAAR: Recommend a three-year deferment of GAAR to allow adequate preparation for its implementation.
• Technology and ICT: Promote greater use of ICT and digital systems to improve tax administration and taxpayer services.