ALLOW EVADERS TO MEND THEIR WAYS & PAY UP

Estimates may vary, but clearly, the size of the black economy is monstrously large. Several factors are responsible for this. The type of faulty tax structures that we designed for ourselves, the ineffective and inefficient manner in which we implemented and enforced the tax laws and the lukewarm societal disrespect towards tax evaders have all contributed to the mess we are in. Surely, the problem is not acute — it's chronic. Perhaps we need to move forward in all directions with a bold and renewed agenda.


Take indirect taxes. The goods and services tax (GST) has the merit of self-policing. The confluence of different central and state taxes and duties in the holy GST is the right answer to correct the historical wrongs. But much would depend on the design of GST. It must be comprehensive to cover goods and services alike.


Ideally, it should have one rate for goods and services. Unduly high GST rates or a differentiated tax structure would again throw back the old problems of implementation, avoidance and evasion. Alongside, we need to provide a world-class modern and efficient tax administration using IT and reduce compliance cost for the assessees.

As for direct taxes, history is the best teacher. The experiment with high tax rates with zeal to punish the rich failed miserably. The narrow tax base has eroded the revenue buoyancy. The complicated tax laws and procedures erupted in unholy alliances.


It is high time to realise that moderate tax rates that are perceived as not 'pinching' by the society can only induce the tax evader to change his heart. In fact, a flat tax rate of 10% or 15%, with most tax collected as tax deducted at source (TDS), is best suited to accelerate transition from black to white.


Finally, a new approach in tax administration — for both direct and indirect taxes — is called for. People's aversion to tax departments seems to have gone beyond a simple dislike for paying taxes. The tax laws and procedures must be rewritten. Those who wish to mend their ways and pay taxes or duties should be encouraged rather than punishing so heavily that they turn indifferent.