Remove
the veil

Scandinavian societies have historically been compliant and transparent. They are also amongst the most egalitarian in the world with levels of decency that are the envy of other cultures. Tax data in these countries has actually been public since the 1800s, when the levy was applied at a municipal level. The legend is that tax officials in those days did not have the time nor resources to verify all returns so they left the task to neighbourly inquisitiveness. Whatever the reason, what really changed everything is when the information became available online in the 2000s and therefore, more easily accessible. All countries witnessed a surge in enquiries and according to data from Google Trends, during the early days of this offering, people searched each other’s incomes more than videos on YouTube. This was followed by a spate of letters to the tax authorities by disgruntled employees, envious neighbours and rabid activists, complaining about under-reporting. Soon stories emerged of online tax records being used to shame low-wage workers and bully children from low-income households. The rich began to worry that criminals would be better able to target them and teenagers were alarmed that previous friendships would be tainted by an economic brush.
As for curbing evasion, a 2015 study found
that the online availability of tax data led to a mere 2.7% increase in
reported income among business owners in Norway. One might argue that this is
reasonable for a society that was already very compliant. Finally, another
study discovered that the ‘happiness gap’ between the rich and the poor widened
by 29% while the ‘life satisfaction gap’ increased by 21%, mainly because the
poor learnt that they were actually poorer than they thought. Clearly, making
tax data public had a minimal positive impact on evasion but a significant
negative one socially. Yet, the tradition continues. For these countries, the
motivation to make tax returns public really stems from the Scandinavian custom
of jantelag, which translates roughly
into ‘nobody is better than anyone else’. It is therefore more of an
ideological measure than a practical one. But what about other countries?
In 2008, Italy tried it when the outgoing
government of prime minister Romano Prodi posted taxpayers' incomes on the
Internet but it was hastily removed after a public outcry and the experiment scraped.
In 2014, Pakistan did it and the practice continues till the present day.
However, there is no verifiable information on whether it has been effective in
curbing tax evasion. In that feudal society most wealthy people, specifically
the landed classes simply don’t bother paying taxes anyway.
The obvious question is whether there are
lessons from these experiences for India. Whilst India amongst developing
countries is better governed and perhaps more tax compliant, it is nowhere
close to Scandinavia – whether viewed from the perspective of taxpayers or that
of the tax administration. Would such an experiment still be worth considering
– and if so, in what shape or form? If egalitarian and transparent societies of
Scandinavia found the social drawbacks of public income tax data a nuisance,
one can reasonably conclude that India would find it worse. It has far greater
socio-economic disparities to begin with and may not want to introduce a
phenomenon that could drive the wedge deeper. But it does suffer from higher
tax evasion and therefore has a greater need for such a measure. The
Government’s initiatives starting with the scrapping of high value currency
notes and the subsequent implementation of Goods and Services Tax were
ultimately to raise taxes and ensure compliance. The suspicion is that lots of
rich people do not pay their fair share and perhaps one way to bring them into
the tax fold would be to open up tax returns for public scrutiny. In a previous
paper we had argued that the taxed portion of India’s Gross Domestic Product
was shockingly inadequate. As it happens only 24% of GDP is taxed with many
exemptions for specific constituencies doled out over the years. Obviously,
this too needs to be fixed.
Be that as it may, at least those that
should and can afford to pay taxes must do so and one way, whilst radical in
nature, is to borrow from the Scandinavian experience. Clearly, there has to be
some application of mind on the creation of checks and balances but the
principle of more transparency resulting in greater compliance simply cannot be
argued with.
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