AMERICAN PERISCOPE. In people we trust

Trust the people? Now, that is indeed a revolutionary idea especially for a democratically elected government! I refer to the new appeal by the finance minister asking for more compliance among the people when it comes to paying taxes.

This is a major challenge and I’m sure compliance specialists the world over will be watching with bated breath to judge from the Indian experiment whether human nature has undergone a radical transformation. Somehow, trust, taxes and compliance do not often occur in the same sentence.

Yet, the finance minister has cleverly wrapped the argument in response to demands that he lower tax rates. Compliance has to improve and the taxpayer base needs to get bigger so we can raise comparable revenues with lower rates, he argued. But the interesting twist is where he aims to motivate greater compliance by asking the tax department to start trusting the assessee and the taxpayer. Perhaps that means if the return smells all right, accept it rather than go pounding on the assessee’s door.

But trust is in the air. The government of Rajasthan is reportedly on a tear when it comes to simplifying procedures. It has tied up with the International Finance Corporation to help develop an efficient and transparent business regulatory system. Rajasthan has even adopted a system of self-attestation of documents for jobs, property, housing applications, etc.

Further baby steps were taken by the appeal by the Centre to the people to voluntarily opt-out of receiving subsidised cooking gas. As of this month, about 57.5 lakh customers out of about 5 crores have given up the subsidy. This is indeed a radical approach; it shifts the onus from the supplier to the consumer and the basis from economic to moral grounds.

The railways have now decided to try their own trust-based method. Since last month, senior citizens are being asked to forego concessional rates for reserved class train tickets. If you can afford it, pay full price. The clever part is the gentle reminder that the railways have incorporated — the ‘real cost’ involved in the train journey is printed on the ticket to tug at your heart strings and help you make the right decision.

The finance minister’s new faith in humanity should be lauded for trying to shift the thinking of a normally suspicious agency, tax collection. In many regimes, especially post-colonial ones like India, we continue to see systems and procedures across the board based on distrust.

While a foreign power had to rely on signatures being verified, and documents in triplicate to keep an alien population under control, the irony is that when the natives come to power, they continue with the same processes, without a second thought.

Rather than suspect that everyone is a cheat and expect everyone to prove they are innocent, a trusting government should move to a regime where they assume people are innocent until proven guilty. When those found guilty are subjected to severe punishment, then the motivation to comply is strong.

As my accountant recently reminded me, attempting to minimize tax liability is a legitimate global sport, but not tax evasion.

The writer is a professor at the Jindal Global Business School, Delhi NCR and at Suffolk University, Boston

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