Signboards showing “tax money at work" in projects for public welfare, expedited boarding privileges at airports, fast-lane privileges on roads and toll booths, special “diplomatic" type lanes at immigration counters and naming important buildings, monuments, roads, trains, initiatives, schools and universities, hospitals and airports in their name. These are some of the measures Economic Survey 2019, authored by Chief Economic Adviser Krishnamurthy Subramanian, has suggested to improve tax compliance in the country.
The survey said that research across countries has highlighted that tax evasion is driven significantly by tax morale - the intrinsic motivation of taxpayers in a country to pay taxes. And tax morale, in turn, is driven primarily vertical fairness - what you pay in taxes is commensurate to the benefits you receive as services from the government - and horizontal fairness, the differences in the taxes paid by various sections of society.
Citizens perceive vertical fairness to be low, the Economic Survey said, if they find their tax payments being squandered in wasteful public expenditure or by corruption. Similarly, perceptions of horizontal fairness suffer when the employee class is forced to contribute disproportionately to income taxes while the class of self-employed gets away paying minimal taxes. Both perceptions contribute to high tax evasion in a country, the Survey said, citing research results.
To correct vertical unfairness that can lead to tax evasion, the survey said, the government should utilise the behavioural insight that people identify with their neighbourhood.
Signboards showing “tax money at work" in constructions projects in a panchayat/district explicitly convey to citizens that their tax money is used in valuable public goods can be one of the ways to lower perceptions of vertical unfairness, the survey said. Similarly, highlighting the tax paid by other taxpayers, especially self-employed individuals, in the panchayat/ district through SMS, billboards etc., can correct perceptions of horizontal unfairness, the survey added.
Such information can propagate the social norm that “paying taxes honestly is honourable," the survey said.
The survey has also offered many other suggestions to improve tax compliance. “Top 10 highest tax payers within a district can be highlighted and accorded due recognition. This may take the form of expedited boarding privileges at airports, fast-lane privileges on roads and toll booths, special “diplomatic" type lanes at immigration counters, etc. Further, the highest taxpayers over a decade could be recognised by naming important buildings, monuments, roads, trains, initiatives, schools and universities, hospitals and airports in their name. The idea is to create exclusive membership of “clubs" that exude not only social status but also honour. Such steps can also help propagate the social norm that “paying taxes honestly is honourable," the survey added.