With an aim to make it easier for honest taxpayers and difficult for tax evaders, Prime Minister Narendra Modi has suggested Income Tax Department to decrease human interface and increase the use of technology.
Speaking at a conference of tax officials yesterday, PM Modi asked them to use data analytics to proactively track and determine undeclared income and wealth.
Data analytics will be an effective tool in the hands of taxmen as demonetisation has led to suspicious bank transactions in the range of Rs. 1.6-1.7 lakh crore. The tax department has already begun the second part of demonetisation by scrutinising suspicious cash deposits and transactions made after November last year when note ban was announced.
As per experts, data analytics can establish linkages between people, their income and investments and can raise red flags. By using advance tools to scrutinise both structured and unstructured data, the government can analyse and establish relationships between different entities or people going several levels deep, based on different sets of data such as addresses, phone calls, social media interactions, travel trends and I-T returns.
Ever wondered how websites show you ads that match your interests? They track your searches and behaviour on Internet. Financial data can also come under a similar but closer scrutiny if data analytics is deployed to detect tax discrepancies.
Robo-audits or computers comparing your tax information with third-party data can bring almost every single taxpayer under scrutiny.
Though the tax department sifting through tonnes of data generated after demonetisation is still limited to basic scrutiny such as looking at common addresses or phone numbers, with data analytics it can get deeper into financial dealings. This is already happening in the US.
The following scenarios have already turned into reality in the US where tax department makes extensive use of data analytics:
1. You testify against yourself on social media
If you get tax deduction by showing visits to Singapore and Dubai as business visits, the big data can compare it with the information you posted on social media. If you have posted photos that show you having fun all the time, you may be hauled up for scrutiny. In the U.S., the tax authorities can read your emails and social media posts.
2. Your card transactions
In the US, payment companies such as Paypal are also required to share all the user information with the tax department. Robo-audit compares your tax return data with third-party information and raises an alarm for tax officials if it finds any irregularity.
3. Micro travel data
Your information even at the toll gates can land with tax authorities, giving it clues about your exact whereabouts in a particular period so that this information can be compared with your claims in the return.
4. Constructing your financial DNA
In the US, data analytics are used to sort all the information gathered from third-parties such as eBay, Facebook and credit card companies into 32,000 categories of metadata with one million unique attributes. This huge capacity to analyse data can help tax authorities to create your financial DNA of sorts—a storehouse of information on your financial habits, behaviour and actions gleaned from online data. If your tax return is at great variance with your financial DNA, you will be up for manual scrutiny.
5. Profiling CAs with history
All the tax returns filed through chartered accountants, who have been probed even once for irregularities in the past 10 years, can come up for closer scrutiny.
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