The prime minister has announced the introduction of a new tax platform that aims to honour the honest taxpayers, most of whom did not have any other option but to pay up as they got their money after tax was deducted at the source. The new tax regime is assuring tax payers of fair, courteous, and rational behaviour, in a way that reflect the taxpayers’ dignity sensitively.

The current regime is such that, with limited options to raise money for running the government, those who pay, voluntarily or otherwise, are taxed too much, while those who evade have the best of both worlds. No wonder, India has one of the lowest tax-GDP ratios.

According to Central Board of Direct Taxes figures for 2018, the rate of tax compliance in India is just about 11 percent. This implies that of nearly 350 million individuals who have taxpayer status, only 43 million filed taxes as of 2017.According to various estimates, less than 3 percent of Indians pay income tax while most Indians under-report their incomes. But there is no doubt that, with the rise in per capita income, the tax to GDP levels have been gradually increasing.

A major problem faced by the tax collectors is that over 60 percent of the population is out of the ambit of the tax system purely by the exemption given to agriculture. This is in addition to a slew of other exempted groups, including senior citizens.

There is mutual distrust between the tax payers and the tax collectors. The government and the overwhelming public opinion are suspicious of the corporate sector’s honesty and feel that they are accumulating profits at the cost of the people. On the other hand, the tax payers feel that the government is wasting the money they pay by spending on unproductive areas and on matters that are outside the welfare of the people.

This is what Modi’s new slogan seeks to address. He has promised a people-centric, public-friendly approach in tax matters and larger structural reforms going forward. The budget for 2020-21 had announced a ‘taxpayer charter’, which was meant to empower citizens by ensuring time-bound services by the Income Tax Department. The charter was aimed at ensuring trust between a taxpayer and the administration and reducing the scope of harassment, as well as increasing efficiency of the department. The new measures announced by the PM give this a more practical shape.

According to the PMO, the focus of the tax reforms has been on reduction in tax rates and on simplification of direct tax laws. Several initiatives have been taken by the CBDT for bringing in efficiency and transparency in the functioning of the IT Department. This includes bringing more transparency in official communication through the newly introduced Document Identification Number (DIN) wherein every communication of the Department would carry a computer generated unique document identification number.
Similarly, to increase the ease of compliance for taxpayers, IT Department has moved forward with the prefilling of income tax returns to make compliance more convenient for individual taxpayers. Compliance norms for start-ups have also been simplified.

Corporate tax rates have already been reduced from 30 per cent to 22 per cent and for new manufacturing units, the rates cut to 15 per cent while dividend distribution tax stands abolished.

The new tax system promises to be become faceless, which the government hopes will give a sense of fairness and fearlessness to taxpayers.

The ‘faceless’ assessments and appeals are expected to ensure that there is no opportunity for personal bias and assessments and that appeals are conducted in a fair and transparent manner. This should help avoid unnecessary controversies and long drawn litigation, which has been a bane for taxpayers.

All these sound very good. But the proof of the pudding is in the eating, as they say. One has to wait and see if the promises remain hollow, as many of the prime minister’s slogans have proved to be, or if there is a real improvement in the system. (IPA Service)