Budget expectations: Technology stack/digital infrastructure  

NSN Murty, Partner, Deloitte India | Pritin Kumar, Partner, Deloitte India | Shrenik Shah, Partner, Deloitte India

Current Environment

Current environment

India’s technology stack and digital infrastructure have undergone a paradigm shift in the past 10 years. Backed by the Government of India’s sustained impetus towards digitisation, several governance operations have been automated and simplified to improve the ease of doing business in India. In this context, two critical areas of transformation stand out—service delivery to citizens and tax administration.

Service delivery

• By configuring and enabling the India Stack and associated initiatives, the government has built a robust digital public infrastructure that has simplified and eased service delivery for citizens. The infrastructure has also reduced the cost of critical operations, such as opening bank accounts, digital payments, targeted delivery of subsidies and identity and document verification.

• In addition to facilitating ease of governance in India, the approach to digital public infrastructure is poised to be “exported” to other regions beyond India. Article 56 of the G20 New Delhi Leaders’ declaration testifies to this.

• India has also launched the PAN 2.0 initiative to address issues currently faced by taxpayers and ITD, as well as the scattered PAN ecosystem, managed through multiple portals. This initiative aims to resolve inconsistencies in PAN data across different ITD applications, which result in duplicities, higher turnaround time in service delivery and data availability due to legacy systems, etc. The PAN 2.0 Project intends to offer improved and streamlined service delivery to taxpayers using e-Governance, enabling near real-time issuance/correction of PAN in digital mode, service delivery through a unified portal, online paperless ecosystem, single source of truth, prevention of duplicate and fraudulent PAN, API based data exchange for PAN validation for business entities, etc.

Tax administration

• Communication with taxpayers has been streamlined with paperless correspondence, faceless assessments and appeals and structured tax portals. The tax administration focuses on digitising compliance and increasing the tax base and collections.

• The tax administration has been proactive in introducing technology and automation in tax, acting as a booster for taxpayers to adopt technology for compliance and reporting. This has made their internal processes more efficient. With the growth of the Indian economy and its tremendous potential, the government may consider the next phase of technology reforms. Some of these are discussed below.

Expectations

Top three asks
Expectation #1: Unified digital infrastructure to use filings under different regulations to reduce multiple reporting and reconciliation of the same/similar data

• Taxpayers are required to do multiple filings/reporting under different legislation, such as tax laws (direct and indirect), company law and foreign exchange regulations. The same/similar type of data is often filed with different authorities under aforesaid laws.

• The government may consider streamlining and unifying digital infrastructure so that data filed under one legislation/with one authority is automatically used for reporting under different legislation. For example, (1) financial data (balance sheet and profit and loss statement) that needs to be mentioned in the Income Tax Return Form can be sourced directly from filings under company law; (2) GST data in clause 44 of Form 3CD (Tax Audit Report) can be sourced from GST returns.

• In the long term, information required by tax and regulatory authorities could be centralised. Each authority can pull relevant data from the data pack shared by taxpayers. The Standard Audit File for Tax (SAF-T) discussed below could be a good starting point for initially centralising tax requirements (income tax and indirect taxes). This will save taxpayers from multiple filings of identical/similar data. The move will ensure consistency in reporting data to the authorities from a regulator's standpoint.

Expectation #2: Standard Audit File for Tax (SAF-T)

• At present, the tax auditor is responsible for the primary level of data collation/check of the tax attributes of a taxpayer during tax audits. Taxpayers typically use different ERP systems to maintain books of account. Often, taxpayers manually extract data and provide it to tax auditors for validation. Further, during assessments by the tax administration, taxpayers collate and submit the data, which tax officers then evaluate. These are also manual processes. Often, the same data is sought by administrators responsible for different pieces of legislation, such as income tax and indirect taxes. In this process, the possibility of inadvertent errors, delays and inconsistencies in reporting and data verification cannot be ruled out.

• The tax administration may consider introducing SAF-T, a global OECD standard adopted by many European countries for both direct and indirect taxes. SAF-T involves creating a data file containing business accounting transactions in a standardised format. This benefits taxpayers as the data submission process to tax authorities can be automated. From the tax administration perspective, a SAF-T file could significantly enhance and automate the tax audit process on a near real-time basis, with the least interference for taxpayers.

• The implementation of SAF-T will boost tax digitalisation to a higher level and significantly reduce the time and effort of tax administration and taxpayers.

Expectation #3: New Digital Public Infrastructure and open networks

India’s commitment to creating and enabling Digital Public Infrastructure (DPI) not only unlocks innovation but also has the potential to transform structural problems in several sectors. In line with the previous Budget announcements that provided the direction for sectors including agriculture and health, the creation of Digital Public Infrastructure (DPI) can boost the nascent DPI/Digital Public Goods (DPG) ecosystem in India. Some focus areas could be:

• Geo-spatial analytics: In recognition of the diverse geographical and infrastructural challenges across India and the vision set in the Indian Space Policy, 2023, a Budget announcement for an open network for geospatial analytics could unlock innovation in the space economy. This would act as a catalyst for several focus segments, such as urban planning, agricultural practices, disaster preparedness and transportation, with an emphasis on tailoring solutions for the unique needs of different regions.

• Purple economy: Specific initiatives targeting differently abled citizens can go a long way in ushering in a new era of inclusive governance and realise the untapped potential of the purple economy. Earmarking funds for a DPI-led approach for research and development in healthcare and assistive technologies and training programmes suited to integrate the differently abled population into the workforce will help unlock untapped resource potential.

• Online dispute resolution: Resource allocation for a phased rollout of an open network for online dispute resolution, beginning with small commercial disputes, may further unlock innovation in the sector. Recognising the diversity of India's legal landscape, the focus should be on piloting these systems in select high-demand sectors and expanding their scope gradually. This can reduce the burden on the Indian judicial system and trigger a fast-tracked resolution mechanism.

Policy recommendations and expected impact/outcome

With the enactment of the Digital Personal Data Protection Act, 2023, India has entered a new era of data economy. Several provisions in the Act will need guidelines and rules for operational clarity and seamless implementation. Framing and notifying the industry of rules will be beneficial.