trust based compliance or enforced based comp

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Trust based compliance orEnforced compliance Which

is more effective?


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Key themes and

findings

This presentation cultivate my views,ideas, and suggestions which shouldexpress regarding Trust based compliancewith respect to tax system so as to havebetter and globally accepted taxadministration system in India.


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Key themes and findings

The aim of this presentation is to exploreempirically whether trust plays a role in

predicting compliance in the taxation context. Taxes are the price you pay for civilization.

Taxes provide government revenues, and those

who pay them have a stake in the system andin how government spends its money. Taxesarea life blood of a stable and prosperous

society.


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Just as it is impossible not to taste honey or poison that one may find at the tip of one stongue, so it is impossible for one dealing with thegovernment funds not to taste, at least a little bit,

of the King s wealth.

(Kautilya, Arthashastra).


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Introduction to Compliance

conformity in fulfilling official requirement

the act or process ofcomplying to a desire,demand, or proposalor to coercion

a disposition to yield toothers

Meaning: Compliance


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Compliances

Enforced Based

Zamindar System

Mughal Era

British Era

After Creation of India

PresentSituation


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Zamindar were initially officials employed by the Mughals to collect taxes

from Ryots (peasants). The zamindari system used the existing structureof the bhuiyan land tenure system of the pre-Mughal era by the Mughalsas a key economic and political institution to implement the sharia-basedIslamic rule over the "zimmis".

1.Mughal Era

2. British era

Zamindars were landlords in colonial India. The zamindari system was a way of

ensuring taxes where collected from peasants. The zamindar was considered alord, and would collect all taxes on his lands and then hand over the collectedtaxes to the British authorities (keeping a portion for himself). The similarities tomedieval feudalism are evident This system in brief enforces farmers and poor people for

compliances of laws made by British govt. to collect tax.


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3.After creation of India :

In some states the zamindari system was mostly abolished in India soonafter its creation with the 44th amendment to the constitution of Indiawhich amended the right to property as shown in Article 19 and 31. Thisallowed the states to make their own "Zamindari Abolition Acts" .After independence at most this system of collecting tax was mostlyabolished than also its running in some other manner.

4. Present situation :

1.Our country got independence in 1947 but in reality we people of Indiaare not yet independent. Compliances made for better administration butit seems like bounding every citizen of our country to comply .


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As we all know that Trust based system result in betteradministration or compliances of law and order. Before

going to this we just have to understand the enforced Basedcompliances and its effect on country as whole.

Compliances

Trust Based Enforced Based


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Enforced Based Compliance System

Enforcement of compliances requires legal oradministrative action .Enforced based compliances is andbounding act of Govt. its just like forcing todo an act. Which result in harassment ofsociety.Compliances made for systematicarrangement of law and order as it complythe rule & regulation.


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Enforced Based Compliance System

To comply the law, enactment doesn t mean thatgovt. aviate Rights of people which ethicalsociety doesn't allow to do so.We all living in democratic country where peoplefreely elect representative to govern then.

Than in return they don t need enforced basedgovernance.The era of Kings and monopoly of one person tolead the country finished. Now democracy lead

and administrate country.


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Difference Between Compliance &Enforcement

In this connection, it is vital to keep in mind thedifference between compliance & enforcement.Compliance consists of all regulations and safetystandards being met.When compliance exists, there is no need for

enforcement.Enforcement is the action necessary whencompliance is not present.Compliance and enforcement actions need to be

applied as consistently as possible.


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What do we mean by atrust -based system?

How does a trust-based system

work?


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A trust-based system relies on active participation by individuals andinstitutions.Active participation means:

Effective systemAffirmative responsibility to reportMeaningful response


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Fundamentals of an effectiveinstitutional compliance system

Credibility

ResourcesKnowledgeProcedures

Accountability


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Trust is a valuable social asset and formsthe basis of democracy.

It is necessary to first understand therelevance and importance of trust.

Tax system that we have at present is basedmore on the elements of distrust.


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Trust demands respect for the inherent value and rightsof a human being.

Distrust kills transparency, creates divide and fuelsmaneuvering to suit ones motive. If a government distrustsits people, people are likely to reciprocate by distrusting thesystem.


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Voluntary Compliance emanates from a trust basedtaxation regime. For which, it is imperative that the systemguarantees each tax payer certain basic rights and respect,which are internationally recognized.

It also recognizes that voluntary compliance with theregulations is the most progressive and effectiveapproach.

Voluntary compliance is based on the idea that members ofthe community have a shared interest, commitment andresponsibility and that they will operate on the basis ofcommon sense, personal responsibility, and respect forothers in conformity with the best practices of the industry.

Encourage Voluntary Compliances


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TAXADMINISTRATION


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WHAT IS TAX? A tax may be defined as a "pecuniary burden

laid upon individuals or property owners tosupport the government a payment exacted by

legislative authority." A tax "is not a voluntarypayment or donation, but an enforcedcontribution, exacted pursuant to legislativeauthority" and is "any contribution imposed by

government . whether under the name of toll,tribute, tallage, gabel, impost, duty, custom,excise, subsidy, aid, supply, or other name."


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Purposes and effects Of Tax

Money provided by taxation has been used by states and theirfunctional equivalents throughout history to carry out many functions.Some of these include expenditures on war, the enforcement of law and public order , protection of property , economic infrastructure(roads , legal tender , enforcement of contracts, etc.), public works ,social engineerin g , and the operation of government itself.Governments also use taxes to fund welfare and public services . Aportion of taxes also go to pay off the state's debt and the interest thisdebt accumulates. These services can include education systems ,health care systems , pensions for the elderly, unemployment benefits ,and public transportation . Energy , water and waste management

systems are also common public utilities . Colonial and modernizingstates have also used cash taxes to dra w or force reluctantsubsistence producers into cash economies.
http://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Public_orderhttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Roadhttp://en.wikipedia.org/wiki/Legal_tenderhttp://en.wikipedia.org/wiki/Public_workshttp://en.wikipedia.org/wiki/Social_engineering_%28political_science%29http://en.wikipedia.org/wiki/Social_engineering_%28political_science%29http://en.wikipedia.org/wiki/Social_welfarehttp://en.wikipedia.org/wiki/Public_serviceshttp://en.wikipedia.org/wiki/Education_systemhttp://en.wikipedia.org/wiki/Health_care_systemhttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Unemployment_benefitshttp://en.wikipedia.org/wiki/Public_transportationhttp://en.wikipedia.org/wiki/Electric_utilityhttp://en.wikipedia.org/wiki/Water_managementhttp://en.wikipedia.org/wiki/Waste_managementhttp://en.wikipedia.org/wiki/Public_utilityhttp://en.wikipedia.org/wiki/Public_utilityhttp://en.wikipedia.org/wiki/Waste_managementhttp://en.wikipedia.org/wiki/Water_managementhttp://en.wikipedia.org/wiki/Electric_utilityhttp://en.wikipedia.org/wiki/Public_transportationhttp://en.wikipedia.org/wiki/Unemployment_benefitshttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Health_care_systemhttp://en.wikipedia.org/wiki/Education_systemhttp://en.wikipedia.org/wiki/Public_serviceshttp://en.wikipedia.org/wiki/Social_welfarehttp://en.wikipedia.org/wiki/Social_engineering_%28political_science%29http://en.wikipedia.org/wiki/Public_workshttp://en.wikipedia.org/wiki/Legal_tenderhttp://en.wikipedia.org/wiki/Roadhttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Public_orderhttp://en.wikipedia.org/wiki/Law


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Tax system in INDIA

In India we follow a system wherein the citizenis enforced upon to pay a certain amount of taxwhich is higher by a certain percentage over hisprevious years tax payment irrespective of thebusiness cycle or his actual income.

This emanates from the pre-conceived notionthat everyone evades tax. Where as, in many

developed countries it is assumed that youwould voluntarily pay the right amount of tax.There are no raids, and searches, and evenwith a much higher tax rate, the compliance ismuch higher.


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The only difference is that if one is caught fortax evasion, then the punishment is certain andsevere so that no one would dare do so.

In India, the prevailing raid and searchencourages more evasion, to get away withpay-out to the enforcement agencies, with thethumb rule of greater the evasion, higher thepayout. The compliance is low, so is thecollection.


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Tax Compliances

Tax compliance has evolved into a major researchtopic in economic psychology. The issue has beenapproached from various viewpoints shedding light on

different aspects of taxpayers behavior.

Attitudes were measured, prevailing social normscaptured and lay theories explored, which peoplehave in mind when brooding over their annual taxdeclarations.


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1.Steps taken by Government to make trust based system inethical society.

2. Why Trust Based system is to adopted over enforcement basedsystem of compliances.

3. How Trust Based compliances can be come into force.

4 Role of Aam Admi to make effective Trust BasedCompliances.

5.Conclusion

Trust based compliance withrespect to tax


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2. Why Trust Based system is to adopted overenforcement based system of compliances

Taxes are major source of revenue

But by use of enforced based compliances cost ofcompliances is higher than tax so collected.For eg. As per Kelkar committee reportWealth tax compliance cost is more than wealth taxcollected.So they advise finance minister for Withdrawal ofwealth tax.

2 Wh T B d i d d


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Indian Finance Minister Pranab Mukherjee describedloyal taxpayers as engines of economy. Speaking toIndian Revenue Services probationers, he insistedthem to treat taxpayer as a client not as enemy.

2.Why Trust Based system is to adopted overenforcement based system of compliances

Enforced basedcompliances killstrust of society aswell it doesn tencourage people

to pay tax .

2 Wh T B d i d d


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Having utterly failed over last 64 years, what we neednow is a complete overhaul of the structure and a 2ndfreedom for the citizens from this imperialistic mindset.

Trust based compliance with strict enforcement in

case of any breach of this trust is the need of the hour.This would make the tax system more robust,transparent and vibrant

The call is for freedom from being harassed by theauthorities due to the huge discretionary power thatthey enjoy.

2 Wh T t B d t i t d t d


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Trust based compliances reduce corruption. This would make the tax system more robust,transparent and vibrant.

Trust based compliances increase revenue. it encourage tax payers to disclose their income and

pay high tax It enable more citizens of the country to become

honest It enthuse respect for the authorities in the eyes of

common man.


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3. How Trust Based compliances can be comeinto force.


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A vital part of this aspect is to achieve uniformity


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A vital part of this aspect is to achieve uniformity,transparency and consistency of enforcement action.

Similar conduct under similar circumstances should

result in the same type of enforcement action. At the same time, it also requires the

Officers/Inspectors to make every effort to understanda person s position and take it into account.

There should not be a rigid adherence to precedentwithout due regard to unusual circumstances

Many factors are considered in choosing an

appropriate course of action to ensure compliance andprovide deterrence to breaches of regulatoryrequirements or procedures.


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A person who reports making an honest mistakeshould generally not be prosecuted or fined, norshould their license, certificate or authority be

suspended or cancelled for reasons of punishment. There should be a measured response to less serious

contraventions of the safety rules and procedureswhich may involve counseling and training rather than

either criminal prosecution or the suspension orcancellation of licenses, certificates or authorities orimposition of any monetary penalties.

Govt. has to determines the way it uses its powers to

regulate the system of compliances. Duties of every official should be transparent and

clear.

Incorporation of Public Trust


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pDoctrine which is based on theconcept that the powers heldby Government officers are, in

fact, powers that originate withthe people, and are entrusted /delegated to the governmentofficers only as a means ofexercising governance and

with the sole objective thatsuch powers shall be exercisedin good faith for the benefit ofthe people. Public power is notfor personal gains or favor but

always to be used to minimizeharm or hazards and optimizethe benefits to the people.

Natural Justice and Accountability : Compliances


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Natural Justice and Accountability : Compliancesdecisions must be

i) fair and follow due process of law;

ii) transparent to those involved;iii) consistent between like circumstances; andiv) subject to appropriate internal and external review.

Impartiality : Compliances decisions must not beinfluenced by

i) personal conflict or agendas of the officers;

ii) irrelevant considerations, such as gender, race,religion, political views oraffiliation; or

iii) personal, political or financial power of those

involved.


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4.Role of Aam Admi to make effective Trust

Based Compliances.

In the taxation context, for example, a taxpayerschoice is between compliance and tax evasion.

By complying, the taxpayer incurs a loss in the form of

taxes paid, but by evading tax there is the chance of arelative gain if the evasion is undetected.

This is empirically theory of rational choice model believe that individuals or firms will comply with anauthority s rules and decisions only when confrontedwith harsh sanctions and penalties.

But this theory is against ethical society.


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Trust being linked to individual beliefs about the likelihood ofreceiving positive outcomes from interactions with authorities.

So every citizen of India should obey law and order. Becausetrust is based on social relationships and fair treatment.

Trust based compliances also require honest and truthfulcommitment of society for better and effective administration.


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1. Trust in government and trust in other citizens significantlyinfluenced their levels of tax compliance, with decreases in

trust resulting in higher levels of self-reported non-compliancewith tax obligations.

Trust based compliances convey fair, stable and sustainable tax system.

2. The findings from the presentation have shown that if taxpayerfeel poorly treated by a tax authority as a result of theirinfractions (innocent or otherwise), this can lead to a decrease

in taxpayer trust .


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This decrease in trust can then go on to affect their willingnessto comply, and might in fact lead to active resistance towards aregulatory authority.

It has been proposed here that by using a strategy based ontrust, regulators may be more likely to prevent widespreadresistance towards their decisions, while at the same timenurturing the good will of those with a commitment to

compliance.

While the law will always involve elements of coercion, the legalsystem has, at best, a limited ability to compel people to obey

the law.

The key to creating trust is to act in ways that citizens will


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y g yexperience to be fair. This argument is the core conclusion ofthe literature on procedural justice.

Procedural justice concerns the perceived fairness of theprocedures involved in decision-making and the perceivedtreatment one receives from the decision maker.

If people believe that an authority is trying to be fair and treatsits citizens fairly, they trust the motives of that authority anddevelop a long-term commitment to accepting its decisions.

People are influenced by judgments of the neutrality ofdecision-making, procedures. Neutrality includes assessmentsof honesty, impartiality, and the use of fact, not personalopinions, in decision-making.


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trust based compliance or enforced based comp

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