From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Tax reforms
The article discusses two recent measures announced by the government to bring in the transparency in the tax system.
Issue of lower tax collection and way out
- An economic contraction this year will severely impact tax collections.
- Changing tax rates or the tax base in response is difficult and a hurried approach can have wider consequences.
- So, the only tool available is to urge voluntary compliance.
- Compliance is achieved through a fine balance between enforcement and encouragement.
- Despite enforcement-driven measures in the past the taxpaying population has remained at only 6 per cent.
- Thus, the only way to boost collections is to build trust between the administration and the taxpayer.
Relation between complexity of system and compliance
- A taxpayer has to interact with the tax system at numerous instances.
- While interacting, if the taxpayer perceives the system to be complex, such perception affects compliance.
- Perceived complexity can discourage individuals from filing returns.
- This could reflect simply in the difference between the number of taxpayers and the returns filed: which is around 20 million.
- Such behaviour is bound to impact tax collection.
Recent government measures to bring transparency
1) New taxpayer’s charter with some new features
- The charter is a document that lists a taxpayer’s rights and obligations.
- A taxpayer’s charter is often perceived as a means to build taxpayer’s trust.
- The rights and obligations mentioned in India’s new charter are in line with global practices.
- There are 3 interesting additions in the new charter: 1) commitment to reducing compliance costs 2) holding its authorities accountable 3) publishing a periodic report of service standards.
- A tax ombudsman can ensure that some of these standards are met, however, in 2019, the cabinet approved the abolition of the quasi-judicial post.
2) Faceless assessment
- This relates to the frequent complaint of taxpayers about corruption and delay.
- To end personal interface, e-assessment was introduced in 2019.
- Developing this idea further, faceless assessment now seeks to further automate the case selection and the distribution function of the assessing officer.
- The intent is to divest and distribute the functions of a single assessing officer so that assessment is carried out in a fair manner.
Consider the question “What are the factors responsible for low tax compliance in India? What are the steps taken by the government to increase compliance?
If the commitment to a fair and impartial system and a time-bound resolution of matters is to be met, the new processes, with reviews and anonymity, must ensure efficiency in case selection and consistency in assessment.