Rates cut to encourage voluntary compliance of tax laws

The Economic Survey (2003-04) has shown that reduction in tax rates would encourage voluntary compliance stimulating investment and production.
Under the reform program, the government has focused on slashing tax rates, broadening the tax base to hitherto untaxed or under taxed sectors and shifting the incidence of taxes from imports and investment to consumption and income.
It said that the tax administration plays a vital role in the success or failure of any attempt to reform the tax system focus on three areas.
First, it must reduce the costs of taxpayer compliance. Second, it should raise the costs of taxpayer non-compliance and third, it must improve the efficiency in tax laws enforcement.
To achieve these broad objectives, the reforms must articulate a comprehensive plan that assigns clear priorities to the task that must be performed and tailored to the available resources.
The reforms must also focus on key functional areas and supporting measures including taxpayer compliance, the enumeration of taxpayers, the estimation of taxable income, the collection of taxes, the enforcement of tax regulations, and the organisation of the tax authority.
The survey said that the reform usually aims at simplifying the tax system so that it can be applied effectively. Moderating tax rates reduces compliance costs, while reducing the number of exemptions and discretionary elements in the tax code eliminates opportunities for tax evasion and thus increases compliance.
Eliminating collusion between taxpayers and tax collectors by switching to self-assessment may increase compliance. Compliance can also be less burdensome if tax laws are simple and taxpayers do not need the help of tax specialists to file returns.
Simplifying tax laws, forms, and procedures make tax administration simpler and more efficient. Compliance can also be increased by improving the taxpayer environment: treating the taxpayers as clients, becoming more service-oriented, providing amenities in tax offices, accelerating refunds, and providing easy access to the tax authorities for tax laws and advanced rulings on ambiguous regulations.