In India, there is no incentive for being honest. On the contrary, you pay a price. Let me explain. Last week, I was travelling in Gujarat. One of the hotels, a small one, was keen to take cash. Many of the establishments are not accepting credit cards though some of them were accepting Paytm. This is despite the huge government campaign to move to digital payments to minimise leakage of tax collections.
In a recent meeting, the Chairman of the State Bank of India in response to a question said that the trust of the bankers in the entrepreneurs was at an all-time low because of the high quantum of default by the corporates. But he also conceded that the genuine borrowers have to pay a high interest rate to cover up the cost of default. So, the genuine borrowers have a double disadvantage – they pay for defaults and also face a low trust quotient from bankers to end up with a huge amount of compliance. In fact, this double discrimination will drive any genuine borrower to become a fraud customer.
We are a country of 1.4 billion people with low propensity for compliance. In fact, you are frowned upon by your fellow countrymen if you insist on standing in a queue. If we can, we will prefer a cash bill without GST, we will break a queue, will ask our MLA for favours for “out of turn” allotment, will bribe the electricity meter man to reduce our electricity bills, “manage” a larger “illegal” water pipeline to our house for municipal water.
The Indian Constitution recognises citizens and persons. Persons are also called artificial persons, which includes companies, trusts, labour unions, foreign residents etc, in addition to citizens as defined in the Indian Citizenship Act 1955. The law-breaker mindset is prevalent amongst all, including citizens and persons (Hereafter persons to refer to both).
Our policymakers and administrators will make a new law whenever an evasion happens — to cover the loophole. Every exception results in a new law. Since we will try to break the rule every time and hence over a period of time, we develop the most demanding compliance system in the world. But who will comply? The law abider.
Who are the two people who benefit from excessive compliance? First the evader – they will “manage the system” and get a competitive advantage. Many small traders, it is alleged, have collected and not paid their GST dues and got an additional margin. Second the taxman — because they will always find a small non-compliance and thus get the “the competitive advantage” in their negotiations with the taxpayer.
The current narrative on tax terrorism is driving the genuine taxpayers up the wall along with the evaders. In fact, every time there is a pressure on targets, the genuine taxpayers get the attention first. Why? Because they are visible, will pay to the exchequer the entire money due without follow-up while the evaders will pay only partly – based on the deal with the taxman. If this trend continues, we will push all the genuine taxpayers, unwittingly, to become fraudsters.
We must change this now before it is too late. How do we identify law-abiding persons and genuine taxpayers? Genuine taxpayers are those who build systems to account for every tax liability – whether they can afford to pay or not. They will account for their dues to the department and end up accounting for huge interest when they delay payments due to cash flow issues. They will shun cash transactions. They open up their entire accounting system to tax audit or scrutiny. They do not coach their employees when tax auditors come. In fact, they welcome tax audit /scrutiny as an opportunity to learn and correct their systems. If they agree with audit/scrutiny findings, they will immediately submit and pay up. They will dispute audit comments strongly if they feel that they are right and will go all the way to the appellate level to prove their point. They work with expert consultants to get their systems right from the beginning. If there is a tax raid, they will cooperate and will not compromise.
(The author is co-chair, FICCI Telangana State Council)