‘People willing to pay tax, if they feel getting worth their money’ – Business Line–24.02.2018

India needs more tax payers. Countries where people paid more income
taxes are ones that developed for various reasons. The relationship
between State and the people completely change, said Government of
India’s Chief Economic Advisor Arvind Subramanian.
If India need to increase both tax GDP and number of people paying
taxes, there should be voluntary compliance. People are willing to
pay, if they feel they are getting more for money. That’s where
delivery of services is more important. There is no doubt that the
better the delivery, more the compliance would be, he said in a talk
on Union Budget 2018-19 moderated by author and economist VA
Nageswaran and organised by the Chennai International Centre.
It is important to induce tax compliance through carrots rather than
sticks. Government is very mindful of this. In the Union Budget
2018-19, there were many other things announced for middle class. It
is not that Government had ignored middle class.  It is an obsession
in the Government to make it easy for tax payers, he said.
China has many more IT payers than India. They achieved this by
setting a threshold at some point in time, and they sat on that
threshold and allowed natural income of people to grow, and then come
in to tax haven. It is a remarkable policy by stealth. “You don’t do
anything, and get more tax payers. However, if you keep raising
threshold, you will be doing the opposite, and people will be falling
off the tax net. This, in long run is not good for the country,” he
To be fair to India and to policy making in India, compliance is much
more complicated problem than people realise. Looking at taxation in
advanced economies like US and Western Europe, the government there
first provided essential public services like roads. Once they
acquired legitimacy in doing that, it is only then income distribution
became important role in policy. “Yes, people said, you are taking my
money and giving it to someone. But, I am willing to do that because
you are everything else to me. India, unfortunately, did not have that
liberty because ‘we started as a democracy, and we always had to
redistribute. Indian state is a quandary having to redistribute
without having acquired trust that it also provides services. How we
get out of this, it is a difficult challenge. We have to do more and
more,’ he said.
Tax compliance is not only an issue for Centre but also for States
that don’t collect enough taxes even relative to powers they have.
People are not willing to pay. It is a vicious circle, he said.
On his views as to why every time during Union Budget the middle class
thinks that IT exemption limit should go up? Subramanian said, “I have
a very strong on this. We talk about middle class. However, tax payer
at lowest threshold is in the top 5-6 per cent of income distribution.
So the notion that tax middle is little bid odd. Tax payer in India is
among the highest percentage of income and wealth distribution


via ‘People willing to pay tax, if they feel getting worth their money’ – Business Line

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