Risk-Based Tax Audits in India and Evolution to Risk Management

Abstract: Today's tax administrations lay increased emphasis on self-assessment and voluntary compliance, and they are moving the emphasis of tax enforcement from risk assessment and management to risk assessment and management. This is because (1) it would be inefficient to regularly audit low-risk, complying individuals and (2) no revenue administration can realistically monitor and inspect every taxpayer. This comprehensive and collaborative strategy aims to promote taxpayer compliance by systematically addressing compliance challenges as a component of long-term strategic planning. Indian tax administration (direct taxes) has adopted risk-based auditing utilising a computer-assisted scrutiny method gradually but progressively (CASS). Despite the establishment of CASS, human selection of tax audits has persisted. The revenue administration is a crucial link between the government and its people. Consequently, a trustworthy tax system is necessary for functional governance. Consequently, legislators are just now realising the need to establish legislation that simultaneously encourages corporate development and ensures complete, voluntary tax compliance. At this time, it is neither desired nor feasible to perform a comprehensive audit of every single taxpayer. Consequently, good compliance management is vital for tax administration. To encourage voluntary compliance, i.e., when taxpayers voluntarily comply with their tax duties without interference from tax authorities, it is essential to establish innovative auditing strategies based on risk management. Audits depend primarily on a systematic technique of choosing auditees that identifies and prioritises taxpayers who represent the greatest threat to the government in order to maximise their efficacy. This aids in fostering a more willing attitude of compliance. As was also recently observed, when the government is unable to properly combat tax evaders, it may lead to a range of concerns and problems. In view of the significance of tax compliance, I want to study methods to make it even more efficient. This article examines riskbased audits for tax compliance, concentrating on their definitions, the significance of key terminology, their application, and their effectiveness. In the essay's meatier middle portion, I will argue why such a system would be advantageous for emerging nations such as India, using specific examples from countries such as the Netherlands. In addition, a practical model may be created by researching the tax compliance rules of various nations and then constructing a risk management-based system.