A deficit of trust puts the spanner in the works between tax payers and the tax collecting machinery. We need to build trust to encourage people to pay taxes more pro-actively, and minimise the adversarial image of the tax collector. For this the tax department requires a makeover, both in its manner and approach to tax collection
Recently while addressing a conference of senior officers of the tax department, Prime Minister Narendra Modi said that there was a trust deficit between tax payers and collectors which had an adverse impact on our tax base and tax collection. The Prime Minister further said that while there should be respect for the rule of law among citizens and the fear of the long arm of the law for those who evade taxes, people should not fear tax administration.
We need to discuss trust, and like love and respect, it is something people take for granted until they lose it. What then is Trust? It has two delineations: The firm belief in someone or something, or the state of being responsible for something or someone the one is proactive, the other is reactive, but both indicate that trust is an elusive concept. Why? Because it is sentimental, and sentiments are idiosyncratic: They depend upon each individual and are produced by our history, culture and emotions. And yet, trust is what fuels and sustains the world we live in. The American political scientist, Francis Fukuyama in his book ‘Trust’ has demonstrated that it is the engine of prosperity. Every investment banker knows that a trustable company trades at premium with its peers. For an organisation to have staying power, it must be built on trust. For a business to be profitable, it must have the trust of its customers. And for a relationship to have any degree of quality, it must be filled with trust. Trust is a must or the relationship will hurt.
Why is there trust deficit between the tax payer and the tax collector? There are many reasons. Our present income tax legislation is in continuation of the Income Tax Act, 1922 when tax was collected for our British masters. Our Central Excise and Customs Laws also originated during the British days. During preindependence days, we Indians might not have liked paying taxes out of our hard earned income to the British Crown. This historical fact of aversion towards the tax collecting department by our people in preindependence days might have continued, though to a lesser extent. Even today, people do not fully trust that their money is going for a good cause. The various scams in the country have eroded the confidence of tax payers. Paying taxes is seen as losing money to poor infrastructure and poor government welfare measures.
Unlike the regular tax desk which is manned by a tax officer whose job is to levy tax on you, this desk is manned by a non-serving tax officer who wishes to share his experience of 35 years in the tax department, while, discussing tax provisions. It is advantageous to know how the tax department thinks and acts when, as said by Benjamin Franklin, “In this world nothing is certain except death and taxes”
The other reason for the trust deficit between tax payers and collectors is the non-friendly disposition of our officers. The presumption in the mind of many of our officers is that tax payers are not honest, income tax returns filed are not believed to be true, and scrutiny proceedings start with this presumption. Proceedings should be unbiased. Tax evaders should definitely be punished but every tax payer is not a potential tax evader and this should be the belief of our officers.
Some of our tax notices have very crude narratives. For example our notice U/S 131 of the IT Act 1961 stipulates the condition that a person visiting the tax office cannot leave the office until he secures the permission of the officer sitting before him. This unnecessarily instils fear in the mind of the people visiting a tax office. Notices for tax collection and penalty notices are not polite, but threatening. There can be no harm if tax payers are told in a polite tone about the penal provisions, but there is no need to threaten a tax payer before he is pronounced a tax defaulter or evader. These threatening notices are issued in a routine manner, where they should have been restricted to proven tax evaders and tax defaulters. These notices create bad blood and put the department in a bad light.
Willful tax defaulters should be arrested. Such provisions exist in the Income Tax Act. Our countrymen and our honest tax payers will appreciate the action of the department if they see the black sheep of the society going to jail
Complicated tax legislation and lengthy proceedings before the tax officers also make our tax payers unhappy when visiting tax offices. The trust deficit widens when the tax payers are asked too many questions that are not relevant for the verification of their income. Sometimes tax payers are not treated well, and they start doubting the competence and integrity of the officers. But sometimes the fault lies with taxpayers who want to hide their income and they play all the tricks. The undeniable fact of the existence of tax evasion and black money makes our tax officers feel that tax payers are dishonest, when at the same time, the majority of tax payers believe that they are subjected to unnecessary harassment. There is mutual suspicion on each side regarding the other.
The perception built over the years by adverse media reports and stories of harassment has also put the tax administration in bad light. There is corruption in our society and there is corruption in the tax department as well, but these stories about corruption are exaggerated. Stories about the tax department are believed, as many of us do not like people who take money as tax from our hard earned income. Some unethical tax practitioners who are the interface between the department and their clients also play a bad role in telling their clients that the department is bad and the officers are corrupt, when they should have been ambassadors of the department promoting the cause of tax payment.
Yes. There are problems and there is trust deficit, but we have to look for solutions. Our country cannot grow without resources, and for that our tax collection has to grow. Our tax GDP ratio is 16.6 percent, which is well below the emerging market economy and OECD average of about 21 percent and 34 percent respectively. We are below our peers in the emerging market by 54 percent. To achieve higher tax revenue, the most important necessity is to widen the tax base. In our country of more than 125 crore people only 5.43 crore people pay tax as per the latest statistics.
Our Prime Minister Narendra Modi in the recently concluded conference of senior tax officers asked the officers to widen the tax base to 10 crore, and this is only possible if the trust deficit is reduced. Our Prime Minister suggested the ‘RAPID’ formula, where R stands for revenue, A for accountability, P for probity, I for information and D for digitisation. The objective of revenue gathering should be achieved by the tax administration doing their work in the most transparent manner, open to probity and accountability. Information should be gathered scientifically, and digitisation will help the process, avoiding physical contact or minimising contact with tax payers and thus reducing scope for any alleged harassment.
The problem of trust deficit can be solved or reduced by pursuing the following steps: 1. Be Open 2. Be Competent 3. Be honest 4. Be Connected with tax payers 5. Display good judgement. People do not trust an unknown commodity and hence it is essential that our tax department be open. It should inform about its structure and function to the common people. It should clarify the doubts in the minds of the people. The officers manning the department should be competent and they should be in a position to explain the complicated legislation and procedures in a simple way for the understanding of both existing and potential tax payers. This will erase the fear of the people for the department. For a department which is collecting money from the people, it is a must that the officials are honest and they are also seen as honest. People will not mind paying tax if they are convinced that the tax collecting system is honest and that their money goes into nation building. Tax officers should remain connected with the people and their problems. They should work as friendly facilitators in the process of tax collection. People should be treated as valuable customers and there should be a direct relationship-connect. People will trust the officers and will come to them with their problems, if they can be solved. The officers should play the role of mentors. Finally, as the proof of the pudding is the eating, a fair judgment and an honest tax order will instill tremendous confidence in existing and potential tax payers. A good and balanced tax order will reduce litigation and will also help the department in early tax collection.
Ninety-two percent of income-tax comes from voluntary compliance in the form of advance tax, tax deduction at source and self-assessment tax. For the balance eight percent, notices are issued for scrutiny assessments, and sometimes survey and search actions do take place. People receiving notices for scrutiny assessment feel this is an act of harassment if, in their view, they have correctly disclosed their income. To minimize this situation, it is suggested that notices should not be issued in a mechanical way by randomly selecting the cases but based on due analysis of information.
The department gets routine information from third parties periodically -- from banks, mutual funds, registrars of properties, etc. In addition, data from other departments like the Central Excise, Customs, Service Tax and state government departments should be considered. Our network will generate cases where enquiry should be made, and notices for scrutiny should be issued only for such cases. Nobody will feel harassed if there is a genuine case for scrutiny. The search and survey actions should be done professionally by the officials. Tax payers will understand if the rule of Law as prescribed in the legislation is followed, provided the officials visiting their places avoid high handedness. The officials doing the thankless job should do it with humility and respect for the people around.
There cannot be any mercy for tax evaders. The department should go ahead and penalise these evaders and prosecute them. But, here too, officials should follow the due process of law. Willful tax defaulters should be arrested. Such provisions exist in the Income Tax Act. Our countrymen and our honest tax payers will appreciate the action of the department if they see the black sheep of the society going to jail.
In one line, our tax officials should act professionally but with a human touch and values that make all the difference. As renowned author and management trainer Shiv Khera said, “Professionalism: It is not the job you do, it is how you do the job”. There will be no trust deficit between our tax payers and tax collectors if our tax officials follow this principle.
by S K Jha
