By Netra Mittal
The finance ministry has announced a 15.2% increase in tax revenue, as of October 2017, over the previous year. On the total number of taxes filed, there was an almost 27% surge in 2016-17, compared to 20% in the previous year and a mere 5% the year before that. These increases can be traced directly back to demonetisation. By curbing black money, demonetisation widened the government’s revenue base, giving it more resources for welfare projects. However, these benefits of demonetisation are only the beginning of a lengthy process towards a healthy tax system. So how can the government build on this success and make more people pay their taxes?
First, we need awareness. As of today, even if someone wishes to file their taxes, there is a general lack of knowledge about how it is done. Indeed, it seems that most people do not even know that it is a legal duty to do so! Education about the tax system—including raising awareness about what tax money is used for—is the first step. Tax education also involves an ethical aspect; for example, for citizens who do know about the duty to pay tax and yet avoid filing, tax-avoidance is a matter of selfishness. Today there is a lack of ethics regarding the obligation to file taxes, which reinforces the avoidant behaviour that is the root cause of the failings in India’s tax system.
Scrutiny needs to be enhanced as well. This is something the government has already begun working on. Heightened surveillance and a crackdown on black money have led to a three-fold increase in PAN registrations, an 18% rise in income tax returns, and a significant increase in the number of properties seized by the tax department. Furthermore, as the government has made digital transactions compulsory for every transfer above Rs two lakh—a process that requires a PAN number—the avoidance of tax is now virtually impossible for such transactions. However, linking the Adhar and PAN cards would make the whole system more efficient. This would weed out fictitious PAN owners, and ensure a one-to-one mapping between the two systems.
A stick and carrot approach
Finally, what is needed is a “stick and carrot” approach. So far, the government has been easy-going, as far as non-tax payers are concerned. Non-payers are not named publicly, as the finance ministry continues to deal with such cases through personal notices. By announcing a list of people—the most significant cases—who have not paid their taxes, the government could ensure greater compliance, as more people would be forced through a social obligation to do so. Moreover, this list would serve as a salutary reminder for any future non-payers.
Further measures to fix the system
Finally, there are certain positive measures that the government can take to fix the system. Tax-filing could be incentivised by deducting the filing fee. Also, simplifying the tax filing process, along with taking measures to accommodate the illiterate and those who speak other languages would ensure greater compliance. Although demonetisation has provided some real benefits, it is important to note that, so far, the country has only just begun the lengthy process towards a healthy tax system.
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