First, Fix a Right Target

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 First, Fix a Right Target

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• The numbers: By March 31, 2020, the government's FY20 (2019-20) net revenue collection was Rs.16.82 trillion, which was 90.86% of annual target of Rs.18.5 trillion. This was the third straight year of such revenue shortfall, indicating the poor processes used for target setting.
• The real trouble: Anticipating higher numbers, the govt. plans its expenditures, which end up being higher than it can afford. The annual fiscal deficit rises, and so does the GoI's borrowing needs from all sources. Wrongly set targets lead to wrong field behaviour also.
• A top-down exercise: Today, the top bosses decide all targets with minimum consultations with the bottom rungs. 

1. The Finance Ministry estimates the expenditure and revenue from all sources. The gap is the fiscal deficit.
2. Then the two revenue boards - CBDT and CBIC - are informed of the annual targets.
3. The CBDT (Central Board of Direct Taxes) and CBIC (Central Board of Indirect Taxes and Customs) give their targets downstream to the Chief Commissioners. 
4. Those are passed on to field formations, who find them unrealistic. 

• The fixed per cent rise: When the one-shoe-fits-all approach is used, and fixed per cent growth is assumed and expected, then it becomes unrealistic for all cities in the same go. Field formations cannot be blamed.
• Other bad practices: When FY end nears, and pressure rises, the officers start pressurising taxpayers into paying more advance tax than what's due, and raise their assessments also. Coercive actions follow. Appeals won by taxpayers in courts are not effected, and refunds not issues either, to not show lower collections.
• Change the approach: Ideally, inputs should be taken from the lowest rung first, and then gradually improvised as it moves up. The state level Chief Commissioners must check what part of the GSDP (Gross State Domestic Product) could they tax last year really. 
• The last stage: Once those figures reach the Finance Ministry, it can see if the Tax to GDP ratio shows a reasonable improvement or not. It can then discuss and revise targets if needed, or cut some expenditures.
• Reform it urgently: The presently-used system of top-down decision making was set 50 years ago, by some management experts who knew Management By Objectives (MBO), the crux of which was participative management. That's all gone now. The system is crying out for reform.

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