Leaving the politics and the implementation gaps aside, Prime Minister Modi’s initiatives of Demonetization and Goods & Services Tax were done to bring the informal (black money as it is called in India) economy into the open. Noble intention they are, which everyone will agree, as more the money that goes through banking channels and sales paid along with due (sales) taxes, the Government has more resources to spend on its various schemes. Unfortunately, getting manufacturers, merchants, dealers and service providers to declare all their sales and pay taxes has been a challenge for independent India (and even in British India) – this is worse in countries like India, where Income Tax and Sales Tax (now GST) rates are comparably higher, increasing the incentive for tax avoidance.
Government of India’s Demonetization
Goods & Service Tax of Government of India
So far, Governments from both sides have tried enacting tougher laws and stricter penalties, with little effect in improving tax compliance in India. It is time to seek help from behaviour economists, who may suggest rewards and bonuses. In this regard, I was intrigued today to read in this Economic Times’ article by Dhirendra Kumar that talked of a different approach followed in Taiwan:
// Since 1951, Taiwan has had a national lottery system whose tickets are the invoices that are issued for retail purchases by shops across the country. The entire country follows what is called a Uniform Invoice System with a common numbering system and on the 25th of every odd-numbered month, lottery winners are announced.//
Reading a bit further on this, Uniform Invoice Lottery from Wikipedia, and Taiwan’s Finance Ministry portal, I learned the price money is about USD 4 Million per month, a princely sum for the size of the country. For India, with a GDP of over USD 2 Trillion, the prize money can be much larger. Maybe, it is time for Niti Aayog and other think-tanks of GoI to look into this.
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