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The underlying theme in the run up to the Budget is the burgeoning fiscal deficit of the government. Government profligacy continues unabated. The main example of this is the loan waiver to farmers. After that comes the complaint that not enough has been done for infrastructure.

The average taxpayer, though pleasantly taken aback at the relaxation in the basic tax exemption limit, nonetheless cribs that there is no investment that offers tax-free interest. The corporate sector on its part is miffed that its expectation of the removal of surcharge on corporate tax was belied. At a panel discussion in which I participated, one senior executive of a software company declared that the IT sector of our country survives not because of the government but in spite of it.

The arguments may have their merit, but at the same time I can’t help but think that the finance minister’s job is a thankless one. It is not possible to please everyone and no matter what he does, some section or the other will always come away feeling disappointed. The general refrain is that the government isn’t doing enough for us. This may be true — but for a moment, let’s take a step back and consider our own actions. As a people, are we doing our bit to help the government to help us?

Consider the following: We are a country of over a billion people. Did you know that less than 3% of us actually pay our tax? Did you also know that from that 3%, 2% are the salaried class who don’t have an option in the matter as their tax gets deducted at source? Which means that only a miniscule 1% actually coughs up the tax voluntarily. In other words, out of over a billion, barely 30 million pay tax. And only 10 million pay tax on their own accord.

Clearly, the issue is one of tax compliance. The government knows this and is taking steps to step up compliance. But this too we don’t like as we look upon it as an invasion on our privacy. Let me explain.

Basically there are three ways of ensuring better compliance. One is by reducing rates and ensuring a moderate tax regime such that people don’t mind paying their taxes. Even the worst critics of the government would agree that the current tax regime is fairly moderate. The second measure is to detract tax evaders by increasing the probability of detection. And the third of course is having adequate penalties in place for those who are apprehended.

Now the big question is how do the authorities increase the probability of detection? The answer is intuitive — identify large spends and check whether the spenders have paid their dues.
Actually, this system has already been put into place since a couple of years by way of the mechanism of annual information return (AIR). The logic being that a person who earns the money will eventually spend it. Between the act of earning and spending, it’s the job of the authorities to ensure that such person has paid up his tax dues.

Therefore, banks, credit card companies, mutual funds, depository participants, etc are asked to provide annual information to the government on transactions over specific amounts. The taxpayer in turn is requested to volunteer similar information through the new ITR series forms that have replaced the erstwhile Saral. Information provided by the organisations is compared and collated with the data provided by the taxpayer and any mismatch is expected to throw up potential tax evader candidates.

At this point, let me take you back in time when the new forms were introduced. Taxpayers and media made a hue and cry about the AIR schedule. The schedule that requires a mention of transactions such as deposits over Rs 10 lakh, mutual fund investments or credit card payments of over Rs 2 lakh, property transactions over Rs 30 lakh, purchase of RBI bonds over Rs 5 lakh, etc, was deemed to be an invasion on the privacy of the taxpayer and the government was universally criticised.

Taxation is an instrument used by the government to achieve its social and economic objectives. It is the price paid to enjoy the benefits of law and order, a harmonious relationship with other countries, protection against external aggression and access to essential services like electricity, water, roads, health, education, sewage disposal, etc. Now, you may think that the above is not being adequately provided for, but do realise that this sorry state of affairs is not the government’s doing alone. It is also that of the millions that don’t contribute but nonetheless expect a lot.

March 31 is around the corner and soon, it will be time to file your tax return. If you have nothing to hide, please volunteer more than the required information. Because of our compliance even if a small percentage of the evaders are caught, leave aside the government — we would have done ourselves a huge favour.

(The write is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com)