Indians have long had a confrontational relationship with the nation’s tax office, whose adversarial approach has crushed countless small businesses and international investors. This was meant to be the year the government fixed all that and repaired relations with taxpayers.
A few weeks ago, the federal budget cut taxes for many middle-class Indians. It also promised to present a new law that would drastically simplify how income taxes were calculated and paid.
When the new bill was eventually made public, however, it was a disappointment. As has happened too often in the decade-plus that Prime Minister Narendra Modi has run India, good intentions have been undermined by half-hearted implementation.
Expectations were high. The tax office proudly said that it had put 150 officials on the job, and they had spent 60,000 hours redrafting regulations. The new law is about half as voluminous as the old one.
Yet the general public and tax lawyers both seem to view this as a missed opportunity. If the government wanted more people to enter the tax net, they needed to completely reform the system. They didn’t. Some parts of the rules have been simplified, but the basic structure remains the same. It does nothing to ease Indians’ basic concern: That the taxman will send them a demand for an arbitrary sum when they least expect it. If the government intended a new compact with taxpayers, this isn’t it.
The state needed to promise, through a new legal code, that it would take a less adversarial approach. Distrust and confrontation is at the heart of how the Indian tax system works, and it is both nerve-racking and inefficient.
This hostile mindset means that compliance costs are too high and disputes too frequent. The burden is so troublesome, in fact, that it renders the country’s small businesses globally uncompetitive. Consider the unnecessarily wide-ranging “withholding” system: Every time someone is paid, the payer has to spend too much time calculating the fraction of that amount to be sent to the government. Essentially, withholding shifts the cost of administration from the state, where it belongs, to the private sector.
Source Business Standard
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