Politics Of Policy | Building A New Tax Culture

Earlier this year Prime Minister Narendra Modi recognised a key weakness of the Indian economy. A country of 1.2 billion has just about 50 million taxpayers. Even though India’s GDP is over $8 Trillion, the small tax payer’s base keeps the tax rates high.

To fund growth the government will have to increase its tax base to a much higher level. Modi has tasked the Finance Ministry to double the tax base to 100 million. While many willingly evade tax, the cumbersome procedures ensure that filing returns is not a pleasant experience.

In recent years, there has been much improvement in paying tax online and simplification of procedures. Direct tax and service tax can be paid to directly through a bank transfer. More than 90 per cent are now e-filing their tax returns according to estimates by the government.

As the government encourages e-filing, the private e-commerce sector has added momentum to the process. Private online tax filing companies are now offering aggregator services that allow millions to get their work done in an efficient manner. For individual tax payers it is also the added advice on investment and tax saving that is proving to be useful. “We offer advice and customised service not just to tax payers but also to start-ups who want to register companies and manage their tax obligations,” says Visvajit Sonagara, Founder of Quicko. Companies like Quicko and ClearTax are expanding the market and have the potential to support the rush of new taxpayers as the base expands.

The technology intervention is allowing such companies to use algorithms to assess the investment needs of taxpayers. By bundling tax filing with investment advice, these companies hope to build a strong revenue model.

However, they will have to be careful about the privacy of data. As they get access to personal income and investment data of millions of taxpayers, concerns about misuse will rise. Such concerns have already been raised by personal health apps that have flooded the market. Trust is a fundamental issue facing e-commerce companies that are offering personal services.

The positive part of the effort is the deeper analysis of data of tax payers. Government departments that have such data have not been able to analyse it effectively. Private e-filing companies should consider pooling aggregated and anonymised data to interpret changes. India needs better data analysis to be able to create and capture new opportunities. Trends on incomes, expenditure, savings and investment can help policy makers and service providers. A country wide effort to analyse and share this data would help the industry make the most of an increasing tax payer’s base.