Given the dramatic shortfall in tax collections over several years, it is not surprising that the Tax Administration Reform Commission (TARC) should come out with suggestions of sweeping reforms and pointed out that the current approach of tax authorities is blinkered. Since accountability is understood only in terms of the shortfall in revenue collections, the ultimate victim is the honest taxpayer, the Parthasarathi Shome commission has pointed out. The adversarial role adopted by taxmen, according to it, can be attributed to an incentive structure that makes meeting revenue targets the sole criterion for assessing performance.
The new government at the Centre has the opportunity to simplify the tax laws to reduce the scope for disputes between taxpayers and the revenue authorities. The objective should be to encourage voluntary compliance and severely penalise tax evasion. Among other things the coming Budget can do is to dispense with all retrospective tax amendments and clarify that any new changes will apply only prospectively. This affirmation, along with clarity on the introduction of a new Direct Taxes Code and a road map for the implementation of a nationwide Goods and Services Tax, will go some way in creating a non-adversarial tax climate conducive to growth and investment. In the long run, this is the only sustainable path to revenue generation.
What the authorities have to remember is that a majority of the taxpayers are law-abiding unlike in the pre-liberalisation period when the inordinately high tax rates induced even the straightforward middle class citizens to consider ways to pay less than what was due. However, ever since the rates have been rationalised with the higher slabs being about 30 per cent, instances of tax evasion have come down though no one can say that the propensity to cheat has disappeared. If there has still been a shortfall of an estimated `77,000 crore, the explanation lies more in the economic slowdown of the last few years than in individual felony.