International Journal of Advanced Education and Research
ISSN: 2455-5746, Impact Factor: 5.34
www.newresearchjournal.com/education
Volume 1; Issue 3; March 2016; Page No. 09-11
Self-Assessment System of Taxation as a Challenge for India
Gurpreet Kaur
Research Scholar, Department of Distance Education, Punjabi University, Patiala, Punjab, India.
Abstract
Economic resources of government can be effectively utilized by the government through an effective implementation of tax
administration system which largely depends upon tax assessment system having two types one is Official Assessment System
(OAS) and another is Self-Assessment System (SAS). In OAS taxpayers are only required to file their annual tax returns when tax
official’s issues the notices of assessment to tax payers whereas under Self-Assessment System (SAS) tax payers are required to
assess their tax liability and to file the tax return properly. Most of the countries namely Sri Lanka, Pakistan, Indonesia, Australia,
New Zealand and the United Kingdom have implemented the SAS and are availing the forthcoming opportunities in this regard. So
it is suggested that India should review the practicality of this system and the present system should be revised keeping in view the
Self-Assessment System.
Keywords: Self-Assessment System (SAS), Official Assessment System (OAS), tax payers, tax assessment.
1. Introduction 2. Review of Literature
Resources of government are utilized for economic Wood, C. William and Doyle M. Joanne (2002), studied
development and these resources are raised from taxation economic literacy among employees of the Business
income. So, tax constitutes an important source of revenue to Roundtable Project’s member corporations in U.S.A. Such
government. Higher the revenue leads betterment of an corporations are public advocacy organizations that aimed at
economy. It can be possible through an effective promoting policies for sustainable, non-inflationary, long-term
implementation of the tax administration system which works growth in the U.S economy. Researcher conducted telephone
on tax assessment system. Tax assessment system is of two survey of 1000 employees of seven large corporations.
types one is Official Assessment System (OAS) and another is Research revealed that greater economic literacy was
Self-Assessment System (SAS). In OAS tax payer has to file associated with more overall education, study of economic
his tax return through an official assessment system. In OAS subjects during college course, high level of income and being
where by taxpayers are only required to file their annual tax male.
returns when tax officials issues the notices of assessment to Loo and Ho (2005) [5], examined the competency of Malaysian
tax payers whereas under SAS tax payers are required to assess salaried individuals in relation to Self-Assessment System.
their tax liability and to file the tax return properly. They measured the tax knowledge of individuals in terms of
This paper briefly reviews the literature on SAS in the chargeable income, exemptions, reliefs, rebates and tax credits.
countries worldwide in relation to personal taxation. The For the purpose of their study they concluded that tax
objective of this paper is to introduce the SAS and its benefits. knowledge of the respondents incompetent to work for Self-
How it is becoming a global challenge for India. Assessment System.
On 1 January 2005, in order to promote voluntary tax Kamaluddin and Madi (2005), measured the level of tax
compliance, the Inland Revenue Board Malaysia (IRBM) has literacy among salaried individuals in Sabah and Sarawak
implemented the self-assessment system of (SAS) on states of Malaysia. The results of the study indicated that
individual taxpayers (Chong & Wong, 2011). As a result, salaried taxpayers in Sarawak are more tax literate as compared
taxpayers must have sufficient tax knowledge in order to assess to Sabah’s employees. Their study concluded that salaried
their tax liability correctly and to file tax return forms on time taxpayers in both states were not prepared for SAS in 2004 as
(Chong & Wong, 2011) reflected by low percentage of ‘very literate’ category. Thus
The SAS requires taxpayers to keep records and documents efforts must be made to raise the level of tax literacy among
properly, fill the returns correctly, compute the tax accurately Malaysian taxpayers.
and finally submit the return form on time with the final Mustascu Mihai and Danultetiu Dan (2011) “The Literacy
payment of tax (if any) (Mahmood, 2012). With regard to the Impact on Tax Revenues” examined the relationship between
filing process, taxpayers first have the options of using the tax revenues and taxpayer’s literacy level, using panel model
electronic return form, whereby assessment is completed approach from the period 1996-2010 by including 123
electronically through the e-filing system, printing a pre- countries. Nonlinear approach was used for performing
printed form from IRBM’s website; or obtaining a hard copy estimates. The level of tax literacy vary from one taxpayer to
from the IRBM office (Mahmood, 2012). Taxpayers are another taxpayer and one country to another. The study
required to calculate their taxes and furnished the return to indicated that low literacy is associated with reduced tax
IRBM as per the due date mentioned in the Act according to revenues.
the categories of taxpayers (Mahmood, 2012)
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3. Rationale behind the Implementation of Self-Assessment 5. Self-Assessment System in Other Countries
System in Malaysia Countries such as Sri Lanka (1972), Pakistan (1979), Indonesia
The concept behind this system is simple. In a formal (1984), Australia (1986-1987), New Zealand (1988) and the
assessment system, the Inland Revenue assess and calculate the United Kingdom (1996-1997) are nations that had practiced the
tax based on the income tax form submitted by a taxpayer. self-assessment system of taxation. Wong (1999), stated that
Theoretically, in the self-assessment system, the taxpayer must self-assessment was introduced in these countries for several
do the calculation of their tax liabilities. This system impacts reasons as follows:
significantly on the taxpayer’s to comply with the taxation law. a) To encourage taxpayers to abide by the taxation
To understand self-assessment, we need to see the underlying voluntarily.
factors of the system. Basically, the closure to a self- b) To ensure efficient usage of tax administrators cost and
assessment system consists of two important pre-conditions resources.
where the assessment form received by the Chief Director is c) To ensure consistent performance in all assessment
subjected to intensive post-assessment activities. These branches.
activities include, inter alia, post-assessment checks and d) To improve and increase tax collection.
auditing activity (Wong, 1999; Abdul Rahim, 1998). The two In Malaysia, the self-assessment system is introduced to
pre-conditions are referred to as the primary and secondary achieve three main targets which are to reduce tax collection
function by Barr et al. (1997). According to Barr et al., primary costs, to enhance tax collection and reduce uncollectable taxes,
function is a taxpayer's responsibility. It is the logical base for and to increase the rate of taxpayers performing their tax
income tax operations such as calculation of total income, tax obligations (Abdul Rahim, 1998).
exemption income, taxable income and taxes to be paid. Self-assessment refers to an assessment procedure based on the
The secondary function executed by the Inland Revenue assumption that all information reported by the taxpayer is
officers is more inclined towards verifying and checking the correct and need not be checked by the Inland Revenue
income tax returns. This is also known as tax auditing. officers. A self-assessment system, on the other hand, refers to
However, this function is not the main operation within the a system whereby the taxpayer has to be more responsible in
Inland Revenue, but it is essential to support the primary ensuring that the correct information is provided in the Income
function. The secondary function is solely performed by the Tax form and the Inland Revenue accepts it in full trust that the
Inland Revenue; In Malaysia, the new system was tabled content is correct and true (Kasipillai et al., 1999). The form is
during the 1999 national budget presentation. It is to be unquestionably accepted by the Inland Revenue unless when
implemented on a step-by-step basis as follows; 2001 for there is doubt as to the authenticity of the information given.
companies, 2003 for partnerships, sole proprietors and
corporations, and 2004 for individual income taxpayers. 6. Present Scenario of Tax Administration System in India
Introduction of the self-assessment system is seen as a new era Some problems that Indian tax administration is facing like
for the Malaysian taxation system. Unsurprisingly, difficulties a) Lack of focus on taxpayer service
exist in its implementation, for instance, from the aspect of b) No dedicated personnel for taxpayer services
acceptance, perception, views and negative attitudes among c) No taxpayer segmentation
taxpayers who are reluctant to change to a new system. d) Multiple agencies for registration
According to Abu Sofian (1997), introduction of the self- e) Absence of taxpayer surveys
assessment system to replace the formal assessment system f) Inadequate fund allocation. Taxpayers express
requires a transition for the Inland Revenue and taxpayers. helplessness
Under this system, concentration of tasks is focused on Against rude or arbitrary behaviour of officers with little
checking income tax forms and tax calculations to auditing and assigned accountability in practice: The confusing, if not
investigation task. On the part of the taxpayers, they have to arrogant, environment that they have to face on a daily basis
accept the responsibility to calculate their own income taxes; a was reported by high finance officials of major Indian
job which they will never do in the formal system. corporations who are some of the largest Indian taxpayers. This
occurred during the consultations at five Indian metros –
4. Impact of Self-Assessment System on Individual Tax Bengaluru, Chennai, Delhi, Kolkata and Mumbai. It is true that
Payers in Malaysia numerous Aayakar Seva Kendras are being set up at locations
With the introduction of SA, most of the taxpayers reported all over India so that a taxpayer can register a question and
being more fearful of being audited. Taxpayer felt that it would follow how the matter is progressing through the system.
be unfair to penalize taxpayers for the commission of However, selected visits indicated a wide variation in
unintentional errors. Taxpayers become aware and able to implementation. Second, through installed ICT software, a
comply the tax matters easily. Taxpayer become more careful taxpayer can log in to see whether and how much his tax
when filing their income tax returns to ensure that they only deduction at source (TDS) has been credited. However, many
paid the tax required and that penalties were not imposed for lacunae remain in terms of non-matching and the system has
non-compliance. The findings of this study could also serve an been slow in correcting anomalies. Third, other than TDS,
important reference to other tax jurisdictions looking to there are significant cases of mismatch between the ICT-based
implement self-assessment particularly in developing countries Centralized Processing Centre (CPC) and the information
where literacy levels among taxpayers are marginally lower percolating from there to a taxpayer’s Assessing Officer (AO).
compared to developed countries. Although the taxpayer suffers as a result of the mismatch, the
lack of responsibility or accountability, leave alone timeliness
in resolution.
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7. Self-Assessment System: Global Challenge for India 8. Wood C, William, Doyle Joanne M. Economic Literacy
Public institutions, including government departments across among Corporate Employees the Journal of Economic
the world need fundamental reform at least every decade. Tax Education. 2002; 33(3):195-205. available from
administration is one such institution. Some countries have www.jstor.org accessed on 20/10/2014
developed the practice of subjecting their tax administration
structure to occasional external examination to facilitate and
introduce corrective measures. India had not taken such
measures in the past and the tax administration has experienced
lowest efforts that do not necessarily reflect global movement.
As the above mentioned countries have implemented the SAS
and availing the forthcoming opportunities. So it is suggested
that India should review the practicality of this system and the
present system should be revised keeping in view the Self-
Assessment System.
8. Conclusion
In Malaysia, the self-assessment system is introduced to
achieve three main targets which are to reduce tax collection
costs, to enhance tax collection and reduce uncollectable taxes,
and to increase the rate of compliance among taxpayers.
The concept behind this system (SAS) is simple. In a formal
assessment system, the Inland Revenue assess and calculate the
tax based on the income tax form submitted by a taxpayer. In
the self-assessment system, the taxpayer must do the
calculation of their own taxes. Countries such as Sri Lanka
(1972), Pakistan (1979), Indonesia (1984), Australia (1986-
1987), New Zealand (1988) and the United Kingdom (1996-
1997) are nations that had practised the self-assessment system
of taxation. India had not taken such measures in the past and
the tax administration has experienced modest improvement
that do not necessarily reflect global movement. As the above
mentioned countries have implemented the SAS and availing
the forthcoming opportunities. So it is suggested that India
should review the practicality of this system and the present
system should be revised keeping in view the Self-Assessment
System
9. References
1. Fatt CK, Khin EWS. Disclosure of Self-Assessment Tax
Systems on Malaysian Agriculture Industries, Journal of
Development and Agriculture Economics. 2012;
4(13):361-370.
2. Jaidi Noodin, Kassim. Individual Taxpayers’ Perception
towards Self-Assessment System: A Case of Sabah,
Journal of the Asian Academy of Applied Business. 2013;
2(1):56-65.
3. Kasipillai. Tax Professionals’ view on Self-Assessment
System Analisis 2000; 7(1, 2):107-122.
4. Loo LC, Mckerchar, Hansford. Findings on the Impact of
Self-Assessment System on the Compliance Behavior of
an Individual Taxpayers in Malaysia: A Case Study
Approach Journal of Australian Taxation, 2011.
5. Loo EC, Ho JK. Competency of Malaysian Salaried
Individual In relation to Tax Compliance under Self-
Assessment Systeme, Journal of Tax Research, 2005;
3(1):45-62.
6. Madi N, Kamaluddin A, Janggu T, Ibrahim MBA, Samah
ABA. Tax Literacy among employees: Sabah and
Sarawak,s perspective, International Journal of Economics
and Finance. 2010; 2(1):218-233.
7. Okello. Managing Income Tax Compliance through Self-
Assessment System IMF working paper, 2014.
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