Paying taxes, in an ideal world, should need no incentivising; it is, after all, about sharing the costs of governance. But, in the real world, evasion is rampant, and governments around the world come up with incentives to get people to pay taxes—and penalties to discourage evasion. Honest taxpayers in Japan are rewarded with the chance to click a picture with the emperor, while South Korea offers access to airport VIP rooms and free parking. In Pakistan, the top 100 taxpayers are given fast-track immigration clearance, free passports and increased airline-baggage allowance. India’s Central Board of Direct Taxes set up a committee to draw up a scheme of incentives for taxpayers, and as per a report in The Economic Times, there could soon be an eclectic mix of privileges and benefits to motivate citizens to comply with the tax laws. These will include dedicated toll-plaza lanes for exemplary taxpayers, priority passport renewals/grants, access to airport lounges, and priority check-ins at the airport. Tax filers will not be rewarded on the basis of the tax amount they pay, but on their track record of regularity and promptness in filing.
Tax compliance levels reached 65% in April of this year from 55-57% in September/October of last year. The incentive proposal is aimed at widening the tax base and narrowing the trust gap between citizens and government officials and bureaucrats. However, will such a measure work, and will it promote sustainable growth of tax revenue?
GST, demonetisation and Aadhaar linkage were mandatory, and were impossible to avoid. So, will positive reinforcement, in the form of gifts, make more in the population choose to pay taxes honestly? It might for a short while, but, eventually, if the gains from the incentives pale in front of the gains of successfully managing to evade taxes, then incentives won’t do much to improve tax compliance. Trust in the government will come from the government putting the taxpayers’ money to productive use that benefits all. Thus, a mix of accountability from the government and, perhaps, more stringent penalties will encourage people to improve compliance.