Last week, as Prime Minister Narendra Modi launched the “Transparent Taxation — Honouring the Honest” platform, aimed at easing the compliance burden and rewarding honest tax payers, a tweet put out by MyGovIndia, a platform of the government, proposed an increase in the list of reportable financial transactions by individuals, apparently in a bid to widen the tax base. In a country where only a minuscule portion of the population pays taxes — the prime minister noted that only 1.5 crore paid taxes in a country of 130 crore — efforts to widen the tax base and curb leakages need to be encouraged. However, widening the list of reportable transactions, which will dramatically increase the compliance burden of honest taxpayers, and create even more space for harassment by an overzealous tax administration, is not the way to do this. While the tweet has since been removed, it may be indicative of the dissonance across various government departments on the approach to tax administration. Proposals such as these reek of bureaucratic overreach, and would increase the degree of complexity of the tax regime, adding to both the time taken and cost of complying with it — exactly the opposite of what the steps announced by the prime minister aim to achieve.
As reported in this paper, the proposal that was being contemplated entailed covering financial transactions, including, among others, hotel payments over Rs 20,000, life insurance premium above Rs 50,000, and health insurance premium over Rs 20,000. Such transactions are incurred by large sections of the salaried middle class — the honest taxpayers the government seeks to reward. It is possible that the costs of complying with such proposals are distorting for salaried individuals while being progressive for non-salaried taxpayers. But they would lead to an increase both in the internal and external price paid for compliance for all individuals. Further, most high value transactions today require an individual to disclose her permanent account number (PAN), which is linked to the Aadhaar number. Surely, in the age of big data, there are better ways of sourcing and cross-checking this data to check for evasion rather than putting the burden of compliance on taxpayers.
The dissonance between the prime minister’s talk of a tax system that is “seamless, painless and faceless”, and such proposals is too obvious to ignore. Complex laws and procedures, compounded by an inefficient and uncooperative tax department will further disincentivise compliance. Rather, the focus should be on building up the capabilities of the tax department to check tax evasion.
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