On October 9, 2018, The Economic Times carried a front-page article under the headline ‘Pay Tax, Get Rewards from the Govt’. It shows that the Government is looking to put in place an incentive programme to reward and recognise taxpayers to encourage a culture of tax compliance and a committee has been set up under Central Board of Direct Taxes (CBDT) to draw up the scheme for this. Further details are not yet clear. However, I am of the firm view that any such scheme would be a sheer waste of time, energy, efforts and money without, in any way, achieving the objective of encouraging people to be good taxpayers.
One may recall that in Budget 1998-99, former Finance Minister Yashwant Sinha had introduced a scheme called Samman “to demonstrate the society’s recognition of honest taxpayers’ important contribution to the national cause”. This was not successful and was abandoned in the year 2004. The issue then is why are we not learning from the past and instead just re-introducing a similar scheme again.
Some of the incentives proposed for exemplary taxpayers include tea with the State Governor; access to airport lounges, which facility is already there for persons travelling in Executive and First Classes; passports will be issued on priority basis for such persons, which is already available subject to satisfaction of certain conditions; and dedicated toll lanes would be provided for such persons. Similar such facilities were to be available under the ‘Samman’ scheme. Even then, it did not prove successful and had to be discontinued.
A case in point is the Padma awards that are announced each year. But, these have not been awarded on satisfaction of any pre-set standards and it is debatable whether these have improved the qualities of the citizenry of the country. In most cases, the top award ‘Bharat Ratna’ has been conferred not during the lifetime of the person but posthumously after death. In lower categories of Padmashri, Padmabhushan and Padma Vibhushan, no settled criteria has been followed. If the past history of such awards is reviewed, there are instances where one person got all these three awards after some intervals of time for no new achievements. This indicates that such schemes can be implemented without any constructive approach.
One justification for an income-tax reward scheme is given on the grounds that in some foreign countries, such rewards are given. According to newspaper reports, in Japan, model taxpayers can get a photograph taken with the emperor. In the Philippines, they can have their name on a lottery for compliance under the value-added tax regime. In South Korea, honest taxpayers receive certificates and have access to airport VIP rooms and free parking. Pakistan has a scheme to reward the top 100 taxpayers every year with access to VIP lounges at airports, fast-track clearance at immigration counters, free passports and enhanced baggage allowance. These are more or less on similar lines, as discussed earlier, in the context of India, but, which did not succeed when this exercise was undertaken earlier. Hence, any scheme on similar lines is bound to be a failure again.
However, if the exercise has necessarily to be undertaken, it should be done in a systematic manner, in real spirit and should be result-oriented. In this context, the following suggestions need to be considered:
- The Committee to formulate the scheme, should be broad-based and not under the CBDT. It could be headed by a member of the CBDT and one of its Directors can be Secretary with 5 or 6 non-income tax members from business, industry, chambers of commerce and prominent citizens of the country.
- The committee should be given nearly six months’ time to complete its work.
- Payment of ‘high taxes’ in a year should not be the only criteria for judging the bonafide of a rewardee. It could lead to ‘robbing Peter to pay Paul’ syndrome.
- It should include the person’s history in tax compliance, say for past 5 years. Whether in these years, he has filed his (i) returns in time; (ii) paid advance and other taxes in time; (iii) has made faithful compliance to the notices, etc., received from the I.T. Dept.; (iv) there had been no searches and seizures in his case(s); (v) no interest or penalties have been imposed for defaults, etc.
- Applications for getting awards be solicited from the prospective awardees and not suo motu picked up by the CBDT. The format for these needs to be prescribed and placed online from where these could be uploaded by the applicants, filled up and filed within the date, to the prescribed authority.
- These applications would be judged on merit by a committee of three senior officers of the CBDT. Such a procedure would avoid prejudices and favours in the matter of conferment of awards and also prevent wrongful selection.
One may recall that in Budget 1998-99, former Finance Minister Yashwant Sinha had introduced a tax incentive scheme called Samman, which was not successful and had to be abandoned in 2004
In this context, it may be worthwhile mentioning that recently the Election Commission of India has decided that candidates for Parliament and State Assemblies will have to give an account about criminal actions, if any, pending against them in their affidavits to the Election Commission. Giving rewards to wrong persons can have severe counter impact and hence, similar procedure needs to be followed in respect of selecting exemplary applicants for income-tax compliance.
For making the scheme attractive, incentives of the nature stated earlier are no good and many such benefits, as stated earlier, are being already availed of. Some solid measures of recognition need to be thought of. For example, an awardee under the scheme could be promised admission of his children in good schools/colleges for medicine, engineering, business management, etc., on priority basis. For this, preferences can be sought in the application itself. Another area of benefit could be getting business loans/overdrafts from banks in a timely and straight-forward way or getting invitations for national events like Independence Day/Republic Day parades in VIP enclosures. Similar such incentives can be thought of by the Committee – not merely tea with the State Governors. And, finally, given the increasing security risks to which rich/prosperous persons will get exposed to by getting rewards, proper security arrangement will need attention too. Without this, real law-abiding taxpayers, though entitled for the rewards, may not like to be exposed to public glare.
The Committee, to be appointed, needs to take note of the aforesaid aspects before formulating a scheme that does merely replicate past schemes already proven to be a disaster.
The writer is former Chairman, CBDT