Adequate data can help improve our tax systems
The government is seeking more disclosures in citizen’s personal and professional filing instruments like income tax and GST returns and capital gains statements among a host of others. A recent move seeking the provision of passport details in ITR-1 forms while filing tax returns has attracted dissent on citizen’s right to privacy. Developed countries like the US effectively compile economic interests of its citizens living abroad and ensure compliance to American laws. India is struggling to even connect the Indian economic interests outside India to resident Indians. The state remains under tremendous pressure to simplify the existing GST systems, capital gains laws and personal taxation systems. While upholding citizens’ rights, ensuring to fulfil their responsibility has been the central problem.
Criticism is centered around government wanting to play big brother watching every move. Let us do a simple smell test to understand if the government’s moves at improving its own information is actually state overkill. In this test, I revert to the times when we had little or no data. In the early 1990s, every business was forced to submit every invoice copy generated to the excise department. Excise official had access to every transaction, knew all customers and the product pricing. Effectively, data was floating around in the governmental system that could easily be used in ways prejudicial to business interest.
Cut to the present where our systems are far more secure. Every investor in mutual funds and stocks has his PAN linked to every investment and demat statement. The government has access to all transactions in one place and would effectively be able to understand income generation in the stock market from its own sources. Similarly, the Indian immigration systems should already know the travel history of all passport holders to and from India. A lot of cross-border travel and trade, legitimate and otherwise, are happening daily. Among reasons for illegitimate travel, smuggling of gold takes the top place, followed by money laundering. While our immigration may have data on suspicious travellers, the tax systems of the country don’t. The interconnect between travel and economic offences is significantly higher now and there is a need to reduce such offences facilitated by data. Connecting the PAN and passport will readily provide the taxman details of regular travellers, suspicious travel patterns and identify frequent travellers who don’t come under the tax radar. The quality of information available will significantly improve. This will only bring the taxman’s knowledge about the specific activity on par with other areas like property purchase, stock market investment and gold purchase.
While the government has improved its knowledge of all these activities over the recent past, it has still pursued a measured approach in dealing with the information. The process of subjecting citizens to scrutiny is being constantly improved. Its fine-tuning to minimise inconvenience has reduced harassment of honest taxpayers. While change does generate concerns, we have adequate mechanisms to address them equitably. On balance, we need to give the government a fair opportunity to deal with its problems while addressing our concerns. Data gives the government a clear idea of how to do this better.
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