Tax paying a fundamental duty?

In the absence of legal provisions, things may not improve substantially

The finance ministry, in order to increase the number of tax-payers, has come up with a novel idea – make tax payment a ‘fundamental duty’. In simple words, it means the government and the income-tax (I-T) department will stress that paying tax on time is good for nation building.

The proposal follows others by the government to educate the people on the importance of tax compliance. For example, the initiative to include taxes in a relevant chapter in the school curriculum. It’s required as well. The percentage of population paying income tax stands at a dismal three per cent. In addition, with the tax to gross domestic product (GDP) ratio slipping to 10 per cent in 2011-12, the finance ministry needs to increase compliance. In comparison, tax compliance in the US stands at 50 per cent.

Ashvin Parekh, partner and national leader, Ernst & Young, says through this proposal, the government is seeking to shift the onus from the tax department to the individual to pay taxes. Earlier, the onus was on the department to ensure that tax was being paid. By making it a ‘fundamental duty’, the responsibility will lie with the assessee.

However, most doubt whether it will work. Says Saakar Yadav, managing director of income-tax portal, myitreturn.com, “There is resistance when there isn’t any returns on the money paid, in terms of better infrastructure, quality of life and so on. So, it is highly unlikely this proposal will work”.

Paying taxes is mandatory even today and making it a ‘fundamental duty’ does not change much because it is not legally binding. At best, it is moral suasion.

Homi Mistry, partner at Deloitte Haskins & Sells, rattles off a series of questions with ‘How will the I-T department implement it across the country? What is the amount of tax they are looking to collect and from whom? How many have taxable income? Or, will the threshold change? Will this change be made in the Constitution or in the Income Tax Act or both?’

Experts say shifting the onus is a clever way of reducing the burden on the I-T department, already grappling with personnel problems. According to a 2009 report by the Central Board of Direct Taxes, the department required 61,000 additional officers if the recruitment was done under the basis of a revenue collection approach. Obviously, many tax experts feel that this proposal might not see the light of day.

Much like the other proposal introduced a few years before when the finance ministry had asked assessees with telephone or television and a few more articles to notify the I-T department. On notifying, the individual’s income was supposed to have been assessed, tax liability calculated and notified. But, nothing much happened.