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In some advanced economies, the term taxpayer is no longer cool. Instead, taxpayers are being treated as customers.

The rationale is that the tax department is there to serve the public, not be served. Which is an interesting idea, because traditionally its role is to shore up as much revenue as possible and prevent people evading taxes. That is why we see our tax departments constantly sabre-rattling the public so that they don’t dare manipulate the system.

How can such an arm of the government offer customer service akin to, say, a restaurant, on airline or a telecom operator?

The signature credo of the hit series House is the eccentric medical protagonist, Dr House, repeating, “Everybody Lies." Ease-of-doing business is about the government understanding that everybody in fact does not want to lie. On the contrary, most people want to comply with regulations, pay their taxes and get along with their lives. The core of ease-of-doing business is to make it as simple as possible for this majority to do just that. And effectively identify the dishonest minority.

The problem is that the dishonest citizen doesn’t roam around with a label around her neck. She is instead perfectly disguised in the crowd of honest taxpayers. So when the government decides to go after her, it inadvertently comes with such a heavy hand that a majority of the honest ones become collateral casualties.

A less acknowledged fact in India is that an aggressive tax department is of use to nobody. The government, corporate entities and judiciary all sweat it out running around in circles with tax disputes, while companies cut growth, employment—and in the process, future taxes. Case in point, India’s precipitous fall in gross domestic product growth from the range of 9% to 5% between 2010-12 was predicated by the ruinous decision of retrospective taxation and a record number of high-profile corporate tax disputes. The punctured investor confidence did little to help India manage record high fiscal deficits in the years to come.

Which begs the question: Is the stick really the best weapon?

The shift from taxpayer to customer isn’t just a cute change of nomenclature. It means that the department can no longer focus solely on maximizing how much tax it can collect. Instead, tax officers will also be assessed on the customer satisfaction they achieved.

Like all customer-facing services, the key is to first understand the customer’s problems. However, getting honest feedback is easier said than done. A taxpayer is less likely to give feedback against a local tax officer if there was even a minuscule risk of facing the vengeance of the system. Alternatively, response to an anonymous, online survey by a separate entity is likely to be very different.

As tax departments start collecting this data, an obvious truth will spring out—there is no single type of taxpayer. For a small business, tax may not be a day-to-day priority. For a mid-size business with increased employees and higher financing requirements, tax will have a different definition. A large corporation instead will have multiple companies across various international tax jurisdictions. Unlike the small business, it is likely to have a dedicated department constantly monitoring its tax.

By segmenting the population, a tax department will be able to offer customized ease-of-doing business reforms. A small entrepreneur running a tuition class may only need a good IT platform for ease-of-doing business. On the other hand, governments in countries like Australia and the UK have dedicated customer relationship managers for their largest corporations, in order to offer them hands-on tax management advice.

The beauty of tax authorities thinking seriously about ease-of-doing business is that there is an element of good karma involved. The idea of tax relationship managers in the government for top companies might initially seem ridiculous. But once a company is confident that the tax environment is predictable and fair, it will be interested in investing more, selling more, hiring more and in the process paying more taxes. Governments will also spend less time and money in costly litigation. Investing in relationship managers for some of the biggest tax contributors is a small price to pay for these gains.

Also, with more data the department can identify “risky" taxpayers better, and make their inspections more targeted. For instance, are dentists in Safdarjung Enclave under-reporting their expenses, compared to the rest of Delhi? Are dentists in general more likely to cut corners than tuition-class owners? Are they under-reporting because there isn’t enough awareness or is it on purpose? Data analytics is the key.

India’s traditional approach to tax has been the equivalent of opening the obstinately tight cap off a jar—i.e. apply brute force. Revenue departments across states are given stern targets based on ambitious expenditure plans. And tax departments in turn set off the hounds with scant regard to the sentiments of those paying taxes.

Maybe the simplest of lessons that India can learn is that there are more ways than one to open that jar. And not all of them have to involve stressing either the jar or the hand.

Aurodeep Nandi is a senior economic adviser to a foreign mission based in New Delhi. Views are personal.

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