Mop Up Tax Collections From Tier II Cities By Widening Tax Net: Experts

At the ‘Think Change Forum’s’ Pre-Budget discussion, eminent experts said compliance was a big barrier to tax collection and the cost of inefficiency in compliance should not be borne by honest tax payers. Experts called for simplified and consistent tax structure that needed to be widened

Think Change Forum (TCF), an independent think tank dedicated to generating new ideas and finding solutions for navigating the post-pandemic world, has released recommendations based on a virtual roundtable on “Pre-Budget Discussion: Does Indian Needs a Re-Think of the current Taxation Approach?. The event had five eminent panelists: Swapan Sarkar – Owner Sarkar & Associates; P. C Jha, Former Chairman, CBIC and Advisor, FICCI CASCADE; Sandeep Chilana – Managing Partner Chilana & Chilana Law Officers; Sanjaya Baru, Eminent Journalist and Advisor, Think Change Forum among others.

The discussion was centered around the topic of whether India needs tax widening to raise government revenue earnings. Experts agreed with the need to grow tax revenues for the government to drive economic growth and make investments in developmental activities. Towards this end, poor compliance was identified as the no. 1 deterrent in achieving targeted collections leading to complex issues like overtaxing, complicated tax structures, rising litigation, among others. The panellists extensively laid emphasis on better compliance processes to be put in place backed by technological support which in turn will enable tax widening and need for strategies to strengthen tax collections from Tier 2 towns and cities to widen the tax net.

A key challenge to smooth compliances, experts said, is the tax collector’s temptation to put higher tax on lucrative segments and the emerging sectors of the economy. This leads to growth in practices like smuggling, counterfeit goods and underground operations. The panellists also argued on the need for consistent and less complex taxation system for the country in order to lessen tax evasion and also encourage domestic and foreign investors. To enable better profitability and encourage investments, taxes should be moderate for new emerging sectors, particularly technology sector. A broad-based approach to corporate taxation is also what the experts recommend.

Swapan Sarkar, Owner Sarkar and Associates speaking about the complexity of Indian taxation said “India needs a consistent and simplified tax structure like other emerging markets in the world. There is constant tinkering in the law, every time a loophole is observed,  the policy makers start correcting it and making changes. This is concerning for both domestic as well as foreign inventors.” PC Jha, Former Chairman, CBIC and Adviser- FICCI Cascade said “Enforcement agencies are working hard to check the illicit trade, but tax evaders are ahead of curve and using innovative techniques to smuggle goods into our country. There is a need to deploy modern technology, install more scanners at ports and use artificial intelligence to address the counterfeiting issue.”  

Sandeep Chilana of Chilana & Chilana Law Offices said, “Tax litigation is one of the biggest burdens on the system. It arises because we do not have a simple tax system and individuals and businesses try to the reduce tax burden by leveraging complex laws. Complex laws lead to higher cost of administration as well as lack of clarity in ease of doing business. In terms of tax laws, there is needed a rethink of such excessive laws.”

Sanjaya Baru, Eminent Journalist and Advisor, Think Change Forum said, “To garner more taxes we need to focus on compliance which is an administrative problem that needs to be resolved and fine-tuned. The tax net needs to be spread wider and cover Tier 2 cities as well. We also need to leverage technology to cast the net wider and increase compliance. Predictability in the taxation system is equally important to ensure compliance.”