Pay as you get

It8217;s that time of the year 8212; tax returns have to be filed 8212; and you would expect finance ministers to mix exhortation with warning. Where P. Chidambaram is being a little different is in focussing on a subset of income earners: high-earning, high-spending, non-paying Indians. And this focus is good. Indian tax rates are among the lowest in democratic market economies. Although compliance has improved 8212; thanks to the current finance minister 8212; following sharp reductions in tax rates, it can be no one8217;s case that far too many wealthy Indians still consider evading taxes utterly normal. That was one of the reasons voluntary disclosure schemes had seemed so attractive. But that was the wrong approach. Better than the carrot of immunity is the stick of information. The annual information returns AIR Chidambaram frequently mentions has the potential to deliver nasty surprises. Much, however, will depend on how taxmen have compiled the information and how they use it.

The nature of tax administration has a broader impact on collections. Just as a tax paying culture has not exactly taken root among many of the Indian rich, a taxpayer-friendly administration was until recently considered an oxymoron by the government. The two feed on each other. Indians simply don8217;t feel comfortable when dealing with tax administrators. While it is impossible to love a taxman, it is possible to respect him. No finance minister can honestly say venality and arbitrariness, two qualities popularly associated with tax officials, are good ways to earn respect.

Add to those two, the attribute of fiendish complexity. The tax code is an employment generator for attorneys and chartered accountants. Even citizens who are more than normally informed are not supposed to understand it. Chidambaram says by July end, a new, simple tax code will be drafted. If that really happens 8212; a big if; remember the 8220;simplified8221; Saral form 8212; and if AIR does help catch a few big time evaders, comprehension and fear may yet change tax paying propensities.