Usually, the economists who write the Economic Survey and those who craft the Union Budget come from different planets. The former live in the ideal world of what ought to be done, the latter in the real world of what is affordable, what can be done. This year though, the two thought processes came together over the need for trust.
While the Survey devoted its opening chapter to explaining why wealth creation needs trust, both in wealth creators and in markets, the budget itself made several points about trust.
The Finance Minister’s speech spoke about many layers of trust, from trust in wealth creators, (improving) trust in official data, trust in small businesses, and above all trust in taxpayers.
The most important of these is the commitment to create a Taxpayers’ Charter — a sort of trust compact between taxpayers and tax collectors — to prevent harassment of the latter.
In many ways, the introduction of the word “trust” is a kind of indirect acknowledgement that in the drive to enforce tax compliance during his first term, Narendra Modi may have inadvertently unleashed the worst instincts of an venal bureaucratic system that preys on hapless taxpayers, both big and small.
But before we look at what form the taxpayer’s charter should take, we must ask a more basic question: how do we know if the charter has delivered on its objectives?
If, over the next five years, we can get the bulk of them back to India by implementing an excellent taxpayers’ charter, that would be Success with a capital S.
First of all, it is not enough to create a taxpayers’ charter that merely ensures that “citizens are free from harassment of any kind,” as the Finance Minister put it in her speech last Saturday.
They need to be treated as valued customers in the way companies do.
It is the taxpayer who keeps the state afloat; it is the taxpayer who pays for the comfortable lifestyles of the bureaucrats who will draft the taxpayers’ charter; it is the taxpayer who enables the provision of public goods and services to the poor. This implies that the taxpayers’ charter should go well beyond merely promising non-harassment to a situation where she is treated like a valued customer and stakeholder.
Some Left-wingers, who believe that the rich need no mollycoddling, may object, but they should know that today, all categories of Indians — from rich to poor — pay taxes. The lower middle classes often end up having taxes deducted at source, and even those with incomes below taxable limits pay indirect taxes.
In short, even in a situation where agriculture isn’t taxed, farmers do get taxed, though indirectly, on the goods they buy.
Consider where a Hindustan Unilever or a Godrej would be if they merely promise consumers a non-traumatic experience.
They know that their survival depends on treating their consumer as Queen or King, with apologies being made when they fall short.
Their annual reports address two primary sets of stakeholders — shareholders and consumers, not to speak of employees.
This is the ideal the state should aspire for when drafting its taxpayers’ charter. It should go well beyond promising non-harassment to treating taxpayers as both shareholders and consumers.
Some taxpayers may be pure payers, others a mix of payers and receivers of state benefits, and yet others may be largely beneficiaries, the poor and the disadvantaged. All need to be treated with respect.
The tax department already has begun the task of recognising honest taxpayers by awarding them certificates of various kinds (gold, silver etc). But while this is a start, it could get better.
The fundamental question the tax department needs to ask itself is this: what is the real benefit the net taxpayer (ie, those who pay more taxes than they receive in government handouts and subsidies) gets from paying his dues to the state?
The answer may be a good defence, better law and order, schools, hospitals and roads, but for the most part, the real benefit that a wealth creator gets by paying his taxes is psychic.
It is the satisfaction that comes from giving back to the society that allowed him to prosper. This is why the super-rich often launch charities of their own.
However, for the rest, the tax department has to figure out how to deliver a psychic gain where the taxpayer continues along the path of remaining tax-compliant and feels good about it.
A good place to start would be to send an annual report card customised to each taxpayer telling him how his tax money has been spent for the welfare of the nation and providing goods and services. If, for example, I can get a note from the taxman at the end of every year telling me about how my taxes have been used, I might feel better about paying it.
This note should not only give me a simple break-up of where my money has gone — this information comes in the budget documents as well — but show me that it has been spent efficiently in terms of actual outcomes. One of the outcomes I would like to see is how each welfare spend is delivering more bang for the buck, with administrative costs coming down as schemes are scaled up.
I would also like admissions of mistakes, where schemes that do not work out are flagged to the ordinary taxpayer for her information.
This kind of transparency and customised report card to the taxpayer is easy in these days of digital letter-writing. Similar letters can be crafted for groups of beneficiaries which can be transmitted through gram panchayats, zilla parishads and other local bodies and beneficiary organisations.
These letters could provide feedback mechanisms and responses. This feedback can then be the basis for next year’s report card to the taxpayer.
It is time to realise that it is not the state that is the mai-baap provider of public goods and services. It is the taxpayer. Reversing the exodus of millionaires ought to be one key goal of the taxpayers’ charter.
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