A nudge on income tax mustn’t become a shove1 min read . Updated: 02 Feb 2023, 11:16 PM IST
The budget did well to incline taxpayers towards a concessional tax regime that wipes the slate clean for taxation simplicity and also gives us a case study in behavioural economics
In a country long accustomed to state paternalism, as captured by the Indian phrase ‘mai baap sarkaar’, the use of its libertarian version, as proposed by nudge theory, is always a marvel. The proposition of this theory is that it is not just useful, but also ethical and at times even ideal to influence behaviour by nudging people in desirable ways without denying them their freedom of choice. India’s Union budget deployed a classic nudge this week by making its concessional income-tax regime the default option, a change that means opting for the old scheme will require us to act, and so the force of inertia could move taxpayers in the desired direction. Personal taxation shorn of a hoary jumble of exemptions is desirable as a matter of principle—for its simplicity. The easier it is for us to compute our tax liability, the better it is. The scope for confusion over law adherence must be kept minimal. This canon cannot be stretched too far, though. A flat rate applicable to all, for example, would be unfair to modest earners who must stretch their money to get by, just as filling up coffers with only indirect levies like GST would impose a lopsided burden on the rich and poor. But once this caveat is taken into account, we should go by this enduring advice of advertising mavens: Keep it simple, silly.