Use technology to detect fraud, tax panel tells Customs

The Parthasarathy Shome committee gives its second reform report to finance ministry, two more due

The Tax Administration Reform Commission (TARC), headed by Parthasarathi Shome, has recommended that the Customs department shift its focus from traditional methods of processing trade documents to a risk-management system with greater reliance on technology.

"Unless this happens, the CBEC (Central Board of Excise and Customs) cannot hope to achieve comparability with global best practices in Customs administration," said the report given to the finance ministry on Friday.

While the Customs department has initiated a risk-based management system, it has not developed an enterprise risk management framework. The framework should facilitate legitimate trade while subjecting riskier transactions to closer scrutiny, the report said.

The report is the second in a series by the commission. The first report, filed in June, had recommended abolition of the post of revenue secretary and merging CBEC and the Central Board of Direct Taxes (CBDT). Such far-reaching recommendations were not part of the second report. The commission, set up by former Finance Minister P Chidambaram, will give two more reports. Shome was advisor to Chidambaram.

The commission said risk-based management included principles of self-assessment that the Customs department had already incorporated. However, the philosophy behind self-assessment had not been internalised in the department, particularly at the operational level.

The report wanted the department to come out with self-assessment checklists to help exporters and importers comply. It also suggested a comprehensive vision statement in sync with global standards. The goal, said the panel, should be delivery of customer services at declared standards and with respect for taxpayers' rights.

It wanted the Customs department to standardise and simplify processes and minimise discretionary controls. To streamline the counter-smuggling measures, the commission wanted the department to upgrade technological support for intelligence.

The report laid stress on deepening the ability to use data analytics for identifying potential economic crimes. Capacities needed to be built in areas like computer forensics, it said and emphasised the need to significantly improve investigative skills. "For enforcement to be effective, a sharper focus on the quality of investigation is essential," it said.

Distinction needed to be made between cases that involved deliberate fraud and those that involved difference of opinion. The latter usually involve technical issues and need to be handled differently. "Normally, the dispute-resolution mechanism should be adequate to take care of such cases," it said. The former category, on the other hand, needed painstaking investigation that uncovered evidence sufficient to sustain the case in prosecution, the commission said.

The report said while the Customs department regularly prosecuted offenders for smuggling, its performance on commercial fraud was not satisfactory. "There is a need to improve on this score," the commission said, reminding the department about its recommendation in the first report about creation of a directorate of prosecution.

The report also wanted the Department of Revenue Intelligence, Risk Management Division, Financial Intelligence Unit and Directorate of Enforcement to coordinate to counter trade-based money laundering.

The commission recommended setting up of a Directorate of Origin to prevent misuse of regional trade agreements. The directorate will be responsible for rules of origin, which identify the country of origin of exports into India. It also recommended setting up a Directorate of International Cooperation. The second part of the report dealt with data sharing among CBDT, CBEC, the Reserve Bank of India, Securities and Exchange Board of India (Sebi), FIU and Central Economic Intelligence Bureau. It suggested a common catalogue of data that would contain information like source, structure, definition, quality and frequency of update. The commission suggested enactment of specific legislation to provide for general rules for exchange.