The Central Board of Indirect Taxes and Customs (CBIC) is planning on a very interesting concept to ensure better tax compliance. From harsh to soft; from a tight slap to a jaadu ki jhappi – that’s how we are looking at the CBIC’s decision to use ‘behavioural patterns’ of tax payers to improve GST compliance.
Instead of concentrating on punitive and stern actions on tax evaders, the CBIC wants to use science of psychology where historical behavior of tax payers will be noted. It will put taxpayers into brackets like – disengaged, resisters, triers and supporters.
‘Disengaged’ are those who deliberately do not comply with tax laws and evade paying up – someone like Mallya and all the willful defaulters. The ‘resisters’ are those kind of people who have problems with the tax system but once their concerns are addressed will pay the tax. The category of ‘triers’ are those who want to pay but have difficulties in paying due to various factors. The ‘supporters’ are the best – they willingly pay complying with law and supporting the system.
And once categorized, how will the CBIC deal with them? They are putting in place a ‘Nudge team’. This will comprise of people who understand behavioural science and will adopt a soft approach, more about being persuasive.
This kind of behavioural economics is not a novel concept designed by India but used successfully in UK, Australia, Canada, Ireland, Netherland, Germany, Sweden, Denmark, USA and Mexico.
There is no doubt that there is no harm in adopting a softer and more humane approach. An insight into the motives of taxpayers and their attitudes and behaviour towards taxation can improve both voluntary compliance and the efficiency of the tax administration.
The challenge for tax administrations is to communicate the message that most taxpayers are honest but those that are not are successfully pursued.21 This should be the central message of the tax administration.
This concept of behavioural economics first started in UK in 2010 on a trial basis and it did so well, other countries adopted it too. The most important criteria for ensuring success is the selection of the right Nudge Team. It should typically include policy advisors, social psychologists, experimental economists, and behavioral scientists. Experience in the public sector should be a must to navigate the government and build support. Skills like psychology, social psychology, anthropology, design thinking, and marketing are a requisite. While these skills are not always readily available in the public sector, it is important to note that all behavioral insights units abroad partnered with academics and experts in the field.
Of course many would feel this kind of approach is not needed and would do little good. Many might call this ‘mass manipulation.’ But how can anything, which uses psychology to help policymakers change behaviour through “nudges” rather than taxes or laws be anything but soft? For years, aren’t companies like Apple and advertising agencies been using behavioural science to shape brand perception and customer behavior, ultimately, to sell more stuff?
The CBIC Nudge team in India will basically work on the wordings of the letter sent to the tax payer. Playing onto their need for being socially always right, being responsible citizens and being viewed as a “good person.” This is the basic premise of this team – to play into the need to be ‘liked’ and be viewed as always right. In UK, letters were sent out to people, using wordings like, “Nine out of ten people pay their tax on time" and this alone brought forth millions in tax paid. The performance of UK’s Behavioural Insights Team was so good that it now helps governments who face a range of challenges, including obesity, social mobility, productivity and even extremism.
This is a very mature and proactive move proposed by the CBIC and it should be lauded for this! If only we could believe that all this will happen and will not merely remain on the paper.
Wonder who will nudge us into having faith in the efficient workings of a Govt organization….