Fostering a tax-compliant culture
Saturday, 9 August 2008
The government is about to take some new initiatives in the current fiscal year to increase the collection of taxes. A similar drive in the last fiscal led to significant results. Many businesses and professional persons who should have been paying taxes but were not doing the same, were identified and brought under the taxation net. A stronger drive is expected in the on-going fiscal to bring more income-earners -- beyond the exemption limit -- within the tax network. Such moves are undoubtedly inspired out of considerations that the taxation base in the country remains a narrow one in comparison to the situation in other South Asian countries and also in contrast to the increasing demand for resources to be spent in different public sectors.
The government will be in no sustainable position to meet such increased demand for public resources without taking measures to substantially increase the amounts yielded from taxes. It is also true that in a country of 150 million people with not so thin base of the very rich and the rich and also with an otherwise sizeable upper middle class -- as is indicated by, what is witnessed about their life-style -- having the ability to pay income tax, hardly 0.65 million presently pay such taxes. And even among those tax-payers, many of them pay taxes far disproportionately compared to their wealth or income. Thus, there are indeed potentials and justification involved in obliging this large number of people not paying taxes or paying them very leniently to be involved in paying taxes regularly and properly.
However, it must also be noted that the culture of tax evasion has a very long history. The taxation departments of the government were not found to be active in the past. The related officials also were not otherwise friendly to, or cooperative with, the tax-payers in persuading the latter to duly abide by the provisions of the income tax laws. Various irregularities, incongruities and, above all, inadequate knowledge about tax-related matters and the legal consequences of tax evasion have not been helpful for fostering a tax-compliant culture. The in-built deficiencies in the taxation system have, thus, been facilitating easy evasion in the payment of taxes. It is important to reform the system adequately. And also the move for making the people aware about paying the due amount of taxes has to be strengthened on all counts.
The present caretaker government has already taken some commendable measures for ensuring tax compliance particularly by offering the opportunity for erstwhile tax-evaders to disclose their earlier undeclared money or wealth, in the process of earning or acquisition of which no corruption, as it should be understood in the sense of gross abuse of public power or position for making private fortunes, was involved, by paying the usual rate of tax plus a penalty. All concerned should avail themselves of such facilities while following, from now onwards, the provisions of the income tax-related laws in filing their annual income tax returns or opening new tax files in the event of them being no tax-payers now, despite having income beyond the tax-exempted limit.
On its part, the government should do all the needful for generating confidence among the tax-payers, actual and potential, and not causing any unnecessary panic or concern among them. It is also relevant to note here that many people will probably like to be tax-compliant when they see that government uses their tax money well or provides proportionate services to justify the taxation. As it is, the spectacles of gross misuse or abuse and waste of public resources are not helping to establish the perception of taxation leading to improvements in the services delivery of the government. People are likely to feel more persuaded or morally troubled, if they do not pay taxes to go ahead, and to pay the same, when they would find the government bodies spending the resources obtained from taxation truly efficiently and scrupulously.
The government will be in no sustainable position to meet such increased demand for public resources without taking measures to substantially increase the amounts yielded from taxes. It is also true that in a country of 150 million people with not so thin base of the very rich and the rich and also with an otherwise sizeable upper middle class -- as is indicated by, what is witnessed about their life-style -- having the ability to pay income tax, hardly 0.65 million presently pay such taxes. And even among those tax-payers, many of them pay taxes far disproportionately compared to their wealth or income. Thus, there are indeed potentials and justification involved in obliging this large number of people not paying taxes or paying them very leniently to be involved in paying taxes regularly and properly.
However, it must also be noted that the culture of tax evasion has a very long history. The taxation departments of the government were not found to be active in the past. The related officials also were not otherwise friendly to, or cooperative with, the tax-payers in persuading the latter to duly abide by the provisions of the income tax laws. Various irregularities, incongruities and, above all, inadequate knowledge about tax-related matters and the legal consequences of tax evasion have not been helpful for fostering a tax-compliant culture. The in-built deficiencies in the taxation system have, thus, been facilitating easy evasion in the payment of taxes. It is important to reform the system adequately. And also the move for making the people aware about paying the due amount of taxes has to be strengthened on all counts.
The present caretaker government has already taken some commendable measures for ensuring tax compliance particularly by offering the opportunity for erstwhile tax-evaders to disclose their earlier undeclared money or wealth, in the process of earning or acquisition of which no corruption, as it should be understood in the sense of gross abuse of public power or position for making private fortunes, was involved, by paying the usual rate of tax plus a penalty. All concerned should avail themselves of such facilities while following, from now onwards, the provisions of the income tax-related laws in filing their annual income tax returns or opening new tax files in the event of them being no tax-payers now, despite having income beyond the tax-exempted limit.
On its part, the government should do all the needful for generating confidence among the tax-payers, actual and potential, and not causing any unnecessary panic or concern among them. It is also relevant to note here that many people will probably like to be tax-compliant when they see that government uses their tax money well or provides proportionate services to justify the taxation. As it is, the spectacles of gross misuse or abuse and waste of public resources are not helping to establish the perception of taxation leading to improvements in the services delivery of the government. People are likely to feel more persuaded or morally troubled, if they do not pay taxes to go ahead, and to pay the same, when they would find the government bodies spending the resources obtained from taxation truly efficiently and scrupulously.