Creation of tax culture and conducive environment
IT is an admitted fact that the tax culture is lacking in India. Despite considerable efforts to widen the tax base, the number of taxpayers is about half the number who should pay tax if they adhere to the law. Although the rates have been lowered over the years, the country still lacks the desired tax culture that exists in developed nations. It is time perhaps that tax is not considered a burden but a price for public services, if not for civilisation itself.
The education and publicity programme should go hand in hand with creating a tax culture and environment that maximises voluntary tax compliance. This requires tax rules and regulations that are sensitive to economic and commercial conditions and that are system-oriented and do not cater to individual interests. Generating an environment and tax organisational ethos that encourages maximum voluntary compliance is the direction in which Indian tax administration should move.
To develop a tax culture, revenues collected should be wisely spent and taxpayers should be able to see how their tax money has been spent. This will encourage them to pay willingly and may be happily. Tied to this is the need to curb corruption and tax evasion. Every rupee collected that is misapplied reduces monies that would otherwise be available to the government for developmental purposes. Corruption serves as a disincentive to payment of taxes. The fight against corruption must be continuous and sustained. The taxpayer should be treated as king. If there is no taxpayer, there is no assessment and no tax revenue and hence no growth. In India, however, taxpayers feel that they are being treated harshly and punitive provisions in tax laws are applied ruthlessly against them. Hence, a large proportion of people consider it prudent to keep a distance from the tax department and the number of non-filers of tax returns is increasing. Many taxpayers become defiant, demotivated and disillusioned because of wrong notions held by tax collectors about their powers, the desire to pass on their part of work to taxpayers, indifference towards them and an attitude that assessees are out to manipulate figures and evade taxes. Such notions strike at the root of a healthy tax culture. A proper tax culture can develop only when taxpayers and tax collectors discharge their obligations equally well. The principle of mutual trust and accountability should be followed. All taxpayers should be responsible and accountable on all tax issues, including transparency, to the government. The government on its part should also be responsible and accountable to citizens on all issues related to taxation.
Tax professionals can also play a role in this. Apart from advising their clients on the present tax scenario, which is more liberal than in earlier decades, tax professionals can play a vital role in educating taxpayers on why they need to pay the right amount of tax; the need to declare their income, pay income tax and furnish income tax return within the prescribed time; the penalties associated with default or delay in fulfilling one's obligations and the actions that the authorities could take against tax evasion and other serious lapses including prosecution.
From the viewpoint of ‘taxes', it is not only the tax system and actual tax practice that form part of a country's ‘tax culture', but also the relationship between the tax authorities and taxpayers. How explicit and precise the tax law is and consequently, how violations are treated will also have a bearing on the development of a tax culture. In nutshell, tax culture is the entirety of all relevant formal and informal institutions connected with the national tax system and its practical execution.
One of the major conditions for tax compliance is a conducive political environment. Taxpayers comply readily with tax laws when they have the assurance that the tax administration is for them and their perceived interests and well-being are protected. The contrary is the case when they feel politically oppressed or victimised. This is why voluntary compliance is always easy under a favourable political climate.
However, opportunities for corruption are pervasive in tax collection; hence, a comprehensive anti- corruption strategy including effective internal audit is necessary. But this cannot happen without support from the top policy making levels. The existence of huge tax evasion signifies the absence of such support.
From the Third Report of the Tax Administration Reform Commission (TARC)