Tax proposals should be planned and implemented like test cricket

The recent proposal to implement TCS for Indian citizens who use their credit cards while travelling overseas has caused confusion and raised concerns. Instead of providing clear answers, this move aimed at increasing tax revenue has generated more questions. How much will this new tax generate, for all the troubles it is putting the citizens, is unclear. Moreover, the introduction of TCS on credit card spending raised worries about the burdensome compliance procedures that taxpayers would have to navigate. The administrative complexities such as reporting requirements and transaction reconciliation could create significant inconvenience and discourage the use of credit cards during international travel. If the official intention is to address credit card misuse due to existing regulatory gaps, it is their responsibility to revise those loopholes.

Despite the initial and immediate public reaction, the policymakers attempted to keep at it, and the current mood can be simply thought of as ‘policy-ziddi’ (meaning headstrong or obstinate). If an ill-conceived proposal backfires, it won’t be a bad idea to withdraw it with abundant grace, rather than complicating it with non-simple explanations, further-FAQs (FFAQs), and forceful FFAQs (FFFAQs). That is the fate of TCS now. 

Plan It Like A Cricket Match

One cannot have an IPL-styled ‘Chris Gayle’ sixes-moment with every tax proposal cheerfully getting to the boundary. Such an attempt would be a political fallacy and policy impossibility. A tax plan is like a five-day test cricket. Firstly, test cricket is known for its strategic and methodical approach, requiring patience and careful planning over an extended period. Similarly, tax proposals involve careful analysis, extensive deliberation, and consideration of various factors to ensure their effectiveness and long-term impact. Secondly, test cricket emphasises the importance of building partnerships and enduring through challenging periods. Similarly, tax proposals require building consensus among stakeholders, engaging with different interest groups, and addressing concerns to ensure successful implementation.

Thirdly, test cricket focuses on the gradual accumulation of runs, reflecting the steady revenue collection that tax proposals aim to achieve. It emphasises the long-term sustainability of tax systems, as opposed to the immediate impact and spectacle often associated with IPL matches. Lastly, test cricket provides a platform for showcasing individual skills, teamwork, and strategic thinking. Similarly, tax proposals require expertise from economists, tax professionals, policymakers, and other stakeholders to design comprehensive and well-thought-out reforms that consider the complexities of the tax system and its broader socio-economic implications. The tax plan should be designed to minimise distortions and promote economic efficiency. This involves aligning tax rates and incentives with desired economic behaviours, avoiding excessive complexity, and encouraging productivity, investment and innovation.

Not A Popularity Contest

While every tax proposal cannot appeal to everyone, no tax proposal has ever won a popularity contest, at least initially. But a tax proposal has to be fair and simple enough to understand and comply with and it should add additional and incremental revenues to the coffers. There lies the tough ask for balancing political and policy urgency in knee-jerk reactionary proposals like TCS.

With so much data that the Indian tax authorities collate, there must be better ways of finding high spenders and tax evaders, instead of going on the offensive on the entire set of honest taxpayers. Currently, the data points are plentiful considering that every spend done through banking channels (including credit cards), payment systems, and markets (where PAN/bank accounts are linked) are traceable, and usage of data science tools and techniques can throw sufficient analysis on the trends. Such has been the powerful impact of our digital public infrastructure. In fact, there is so much data that even the very act of filing annual income tax returns can be eliminated. Yet the old-school bureaucratic mindset of making others sweat continues. This is also where ease of living needs to drastically improve.

Srinath Sridharan is author, policy researcher & corporate advisor. Twitter: @ssmumbai. Views are personal, and do not represent the stand of this publication.