File, smile and go

Prime Minister Narendra Modi’s speech at the Rajasva Gyan Sangam — an annual conference of tax administrators — advising taxmen to become taxpayer-friendly and change their behaviour to being “soft and sober” towards taxpayers, comes as a breath of fresh air and needs to be welcomed. It is refreshing because the thought comes from the highest level, and welcome because the taxman-taxpayer relationship has been adversarial for far too long. If complex tax laws with numerous exemptions and deductions are one reason for disagreements leading to sour relations, a more important one is the widespread assumption among taxmen that all taxpayers are potential evaders and hence must be viewed with suspicion. It is the latter attitude that the Prime Minister referred to as “fear of harassment” and hence, calls for correction.

The conference threw up a dilemma among tax officers on whether they should give priority to “tax enforcement” or “taxpayer-friendly” measures. There should be no place for such a dilemma in the first place considering that 92 per cent of tax revenue comes voluntarily from self-assessments, TDS and advance tax payments. And scrutiny assessments, where the taxman needs to enforce the law, yield just 8 per cent of revenue though as many as 42,000 officers are on the job. The data can mean only two things — one, the proportion of honest taxpayers is considerably higher than what the taxman may want to believe; and two, there is more scrutiny (often bordering on harassment) than required, and there is disproportionate time and effort spent on such scrutiny relative to revenue gains. Modi is right when he says that becoming taxpayer-friendly will automatically lead to an increase in tax revenues.

But simply projecting a friendly face is not enough. The other important cause for the vexed relationship — complexity in the law due to too many exemptions and deductions — needs to be addressed too. The Centre should simplify the law by doing away with exemptions/deductions and proportionately adjusting tax rates and slabs. Focus should also be on simplifying procedures by placing trust in the taxpayer. For instance, some developed countries have the concept of ‘Ready Returns’ by which the tax department generates returns for individuals based on data from the employer and past returns filed. The taxpayer has to only review the return to make changes, if any. Given that Form 16 is comprehensive and the taxman now has the capability to connect financial transactions through the PAN and Aadhar numbers, there is no reason why something similar cannot be tried out here too, at least with salaried taxpayers.

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