Customs Day and Taxation systems in India

January 26th was the Customs Day.

Four years back I was invited to the celebrations in Coimbatore. For the last few years, I do not find myself, getting invited! Maybe, because I 'pay' much lesser taxes and duties these days.

Well, I wanted to draw your attention to the message given by our FM, Mrs Nirmal Sitharaman on this day  at New Delhi, this year.

https://economictimes.indiatimes.com/news/economy/policy/work-focus-of-indian-customs-shifted-to-trade-facilitation-fm-nirmala-sitharaman/articleshow/80480576.cms

See the report in the Economic Times the next day (27th).

The ideas and the thoughts are absolutely lofty. Yes, Customs should become 'people' friendly and do 'business and trade facilitation' from now onwards. And that the Customs is going through a 'transformative process' and become more 'people centric'.

I could not but help recollecting a similar lofty statement made by the then FM, Yaswant Sinha, in the year 1998 when he took over the mantle. The primary target at that time was the Audit system that was being followed by the Customs and Excise department. As a follow up on the announcement, the Excise Audit 2000 (EA 2000) was introduced.

EA 2000 was an adopted and Indianised version of the Canadian Tax Audit system. Canada introduced it to change from what they called as a 'reactive Taxation' system to a 'proactive Taxation' system. And they did it almost a decade before, early 1990s, and the results they said were very impressive. By becoming a proactive system, they reduced litigation by over 70% in five years starting from 1992 to 1997.

Now, switch over to India. We adopted similar lofty ideals. EA2000 was a result of the famous Raja Chelliah headed Tax Reforms Committee almost seven to eight years before. I could pick up the Government's guarantee in the EA 2000 implementation: 1) Integrity and Judiciousness 2) Courtesy and Understanding 3) Objectivity and Transparency 4) Promptness and Efficiency.

If these guarantees were held, then the target of reducing tax audit related litigation would have been achieved as it happened in Canada. But then, in India, after implementing EA2000 the litigation went up by on an average 10% every year and reached a 150% plus increase in litigation after implementing EA2000!

I think, it has got to do with the mindset of the people. The officers in the department 'think' that every tax payer is an authority in the legal and regulatory framework that governs the taxation system. And they presume that none of these people should make mistakes. Worser still, if they make mistakes, whether wantonly or not, then they should pay penalty that would keep them compliant! Really?

Most of the officers look at the tax payers as people who are NOT compliant. As people who are committing transgressions of law. As people who are evaders of tax. To bring them out of this understanding is, possibly, the first change that should be done. Majority of the tax payers are tax compliant. Only a minority are not!

Tax planning is not Tax evasion! And carrots are better than sticks to make people comply laws. Try them, instead of threatening people to submission.

Will the FM usher in another program that might go the EA2000 way or will this open a better understanding of Indian society and taxation systems.

Time would tell.