Nudging Tax Revenue: Of Reward Programmes and Effective Schemes

According to statistics, only seven lakh assessees filed their service tax returns or paid service tax out of over 17 lakh registered service tax assessees. The others have defaulted from paying taxes. The government has released a list of income tax/corporate tax defaulters stating that the top 31 defaulters amount to Rs.1,500 crore dues. Every year, the government sets a tax collection target. However, the targets are hard to reach due to the growing number of tax evaders. Along with setting goals, the government has been framing schemes to realise them.

Proposed methods for raising revenue

The Economic Survey for the financial year 2018-19 recommended the idea of rewarding the top 10 highest taxpayers by naming roads after them. Here is a list of ideas specified in the survey:

• Expedited boarding privileges at airports, fast-lane privileges on roads and toll booths, and special ‘diplomatic’ type lanes at immigration counters.
• The highest taxpayers over a decade to be accoladed by naming monuments, buildings, trains, roads, schools, universities, hospitals, and more after them.
• Exclusive membership for clubs may be provided for such taxpayers.

In addition, the government has also been planning to start an incentive programme after considering the rewards programmes from various countries. The underlying idea of this proposal is that ‘paying taxes is not just advantageous, but also honourable’. This, basically, increases the morale of honest taxpayers and encourages others to be punctual with tax payments as per the survey. 

The recognition is not just based on the amount of tax paid, but it considers factors such as the regularity of tax payment, not being penalised/prosecuted, not being subject to search/investigation.

Also Read: Budget 2019: Does tax slabs change at all for salaried individuals?

How can these methods be applied?

Apart from the ideas to push the tax revenue and building a sense of responsibility towards tax payment, the following methods might be implemented to confirm tax payments:

• Realising the tax revenue collection targets can be difficult with just the end-goal in sight. There must be certain plans to work the way out to reach these goals.
• Awareness must be raised about filing income tax returns even when there is zero income tax payable.
• It will be great if there is a separate ITR form for taxpayers with zero income tax liability.
• Educating people on the process of tax filing and choosing the right forms for various purposes.
• Automated tax collection will ensure that the taxes are paid and reduce the cases of defaulting drastically.
• If taxpayers feel that the probability of detecting defaulters is high, the courage to default tax payments may reduce.
• Messages can be sent to taxpayers stating that taxpayers can have limited negative effects.
• Statistics that mention most people in the locality pay taxes on time will encourage those who have not yet made the payment yet.

Service Tax Voluntary Compliance Encouragement Scheme (VCES)

Previously, the government had implemented the Service Tax VCES as an effort to raise the tax revenue. In the Finance Bill 2013, the government introduced a scheme to allow taxpayers, who had defaulted their past service tax payments, to voluntarily comply with the service tax regulations. The scheme provided an opportunity for individuals and companies to declare their past tax dues.

According to this scheme, any unpaid service tax for transactions done from 1 October 2007 up to 31 December 2012 could be paid until 31 December 2013. A minimum of 50% of the tax payable must have been paid by 31 December 2013, the balance without interest to be paid by 30 June 2014, and the balance with interest to be paid by 31 December 2014. This was a vital opportunity given to all tax evaders. This scheme included the promise of no penalty, no prosecution, no interest, and no future legal proceedings.

The government has come up with a number of effective schemes to nudge tax revenues in the past. On the same lines, the government has been doing constant brainstorming to bring in new ideas year-on-year. Instead of only ideating the plan on how tax revenue can be raised, it is more important to create a delicate framework for practical and realistic plans to conquer these ideations.