NAME- VAISHNAVI SINGH

ROLL NUMBER- 21/403

SEMESTER/COURSE- 5TH SEMESTER/ BA(H) ECONOMICS
SUBJECT- PUBLIC ECONOMICS

Question- Study and analyse with the help of best practices

across the globe- how the government of India can raise
direct tax revenue collection without raising the direct tax
rate. Suggest some suitable policy recommendations in the
light of verifiable evidences.
Direct tax revenue is crucial for funding public expenditures, infrastructure
development, and social welfare programs. While raising direct tax rates
may seem like a straightforward approach, it is essential to explore
alternative strategies to ensure fiscal sustainability and economic growth.
This analysis examines global best practices and proposes policy
recommendations for the Government of India to enhance direct tax revenue
collection without resorting to rate hikes.

GLOBAL BEST PRACTICES

1. DIGITAL TRANSFORMATION:
The process of digital transformation entails using technology to
modernise and streamline tax administration procedures. To increase
efficiency and lower the possibility of tax evasion, it includes the
creation of user-friendly online platforms, tax filing automation, and
the integration of digital tools.
Example- Estonia’s E-government system
One of the best examples of a successful digital transformation in tax
administration is the e-Government system in Estonia. The nation has
put in place a robust digital tax system that makes it simple for
individuals and companies to file taxes online. "e-Residency," the
digital identity system, makes safe online transactions, particularly
those involving taxes, possible. This change has not only made paying
taxes easier, but it has also helped Estonia rank highly in the World
Bank's Doing Business report.

Estonia is regularly ranked among the best nations for ease of doing
business in the World Bank's "Doing Business" report, which places a
special emphasis on the effectiveness of tax-related procedures. The
excellent results for the "Paying Taxes" category demonstrate the
 effectiveness of Estonia's digital tax system and the beneficial effects
of digitization on tax administration.

2. DATA ANALYTICS AND ARTIFICIAL INTELLIGENCE:

Using cutting-edge technologies, data analytics and artificial
intelligence (AI) examine large databases, spot trends, and forecast
possible tax evasion. These instruments improve the efficiency of tax
audits by enabling authorities to more precisely target instances that
pose a high risk.
Example- United States’ Internal Revenue Services
To identify instances of tax evasion, the IRS in the US has
implemented advanced data analytics and artificial intelligence
methods. The IRS uses machine learning algorithms and predictive
modelling through its Fraud Detection and National Research
(FraudNET) programme to examine tax returns for irregularities and
suspicious patterns. The detection of fraudulent activity has increased
significantly as a result of this proactive approach, and overall tax
compliance has improved.

The IRS's annual reports and statistical data highlight the benefits of
using AI and data analytics. The efficacy of these technologies in
augmenting tax administration is exemplified by the amplified
identification of instances of tax evasion and the consequent
enhancements in revenue collection.

3. SIMPLIFIED TAX CODES:

Reducing complexity, closing loopholes, and establishing a clear,
intelligible tax system are all components of simpler tax regulations. A
more straightforward tax code reduces uncertainty, which facilitates
compliance by taxpayers and the enforcement of tax laws by
government agencies.
Example- New Zealand’s Simple Tax System
The tax system in New Zealand is frequently used as an example of
simplicity. The nation's tax code has been simplified, with fewer
exemptions and more precise regulations. New Zealand's excellent
ranks in international assessments, such the World Bank's Doing
Business report, can be attributed in part to its straightforward tax
structure.

New Zealand is regularly ranked highly in international surveys

concerning the ease of doing business and paying taxes. The efficacy
of this strategy is demonstrated by reports from institutions such as
the World Bank, which show a favourable association between
enhanced compliance and a streamlined tax system.
4. PUBLIC-PRIVATE PARTNERSHIP:
Public-private partnerships refer to cooperative efforts between
government agencies and private sector organisations with the aim of
utilising outside resources, technology, and expertise. These
collaborations improve tax administration's efficacy and efficiency.
Example- Collaborative efforts with technological companies
Around the world, governments are working with tech businesses to
improve their digital capabilities. For example, the Indian government
might collaborate with top IT companies to create cutting-edge
software for tax administration, put data analytics tools into place,
and bolster cybersecurity protocols.

The benefits of public-private partnerships are illustrated by case

studies and success stories from a range of nations. It is possible to
compile examples of how the experience of the private sector has
improved tax administration procedures, increased productivity, and
produced better compliance results.

POLICY RECOMMENDATIONS FOR INDIA

1. DIGITILISATION OF TAX ADMINISTRATION

Implementing a Unified Digital Platform: Include processes for
tax payment, filing, and compliance in a single digital platform.
Taxpayers should have a seamless experience using this
platform, which should be accessible, secure, and user-friendly.
Leveraging Blockchain Technology: Investigate how blockchain
technology can be integrated to improve transaction security
and transparency. This can lower the likelihood of fraud and
foster confidence among taxpayers.

2. DATA ANALYTICS FOR RISK ASSESSMENT

Creation of a Centralised Analytics Unit: To evaluate and
identify high-risk cases of tax evasion, establish a centralised
unit outfitted with state-of-the-art data analytics tools. In order
to obtain a comprehensive dataset for more precise risk
evaluations, this unit ought to cooperate with other government
entities.
Predictive Compliance Modelling: Use predictive modelling tools
to anticipate possible non-compliance, allowing for the proactive
resolution of problems before they become more serious. High-
impact cases can be prioritised and resource allocation can be
optimised with this strategy.

3. TAX PAYER OUTREACH PROGRAMS

 Multi-Channel Communication Strategy: Using print, radio,
television, and social media, create a multi-channel
communication plan for taxpayer education. This approach
should concentrate on demystifying intricate tax ideas and
clearly and concisely presenting the advantages of compliance.
Cooperation with Academic Establishments: Form alliances with
academic institutions to include fundamental tax education in
the curriculum. Future taxpayers can be raised with a culture
of compliance if they are given early exposure to the importance
of understanding their tax obligations.

4. REWARDING COMPLIANCE
Introduce Small Business Incentive Programmes: Create
incentive plans designed especially for small companies that
regularly exhibit compliance. These incentives could come in the
form of tax breaks, lessened administrative duties, or special
access to government assistance initiatives.
Acknowledgment and Certification: Establish a public
recognition and certification programme for companies and
individuals who have demonstrated a consistent history of
compliance. This has the potential to act as a mechanism for
positive reinforcement and inspire others to do the same.

5. PUBLIC PRIVATE PARTNERSHIP

Engagement with Technology Companies: To improve the
government's digital capabilities, encourage partnerships with
technology companies. This can involve creating sophisticated
data analytics tools, cybersecurity protocols, and tax
administration software.
Sector-Specific Collaborations: Public-private partnerships
should be tailored to certain industries by utilising sector-
specific knowledge. Working together with financial institutions,
for example, can improve overall compliance and increase the
inspection of financial transactions.

VERIFIABLE EVIDENCE WITH A FOCUS TO

RELEVANCE OF INDIA

1. Estonia's E-Government System: India's tax administration could

benefit from Estonia's successful digital transformation. India can
modify these procedures to improve accessibility and transparency by
concentrating on creating a user-friendly online tax portal and
utilising blockchain technology. With the size and diversity of India's
population, a digitalized tax system might make paying taxes easier
for both individuals and corporations.
 India may learn from Estonia's success as it develops its digital
infrastructure. Tax administration might be revolutionised and
compliance could be increased with the deployment of a single digital
platform that is specifically designed to meet the needs of the diverse
group of Indian taxpayers.

2. The Internal Revenue Service (IRS) of the United States offers an

appealing paradigm for India due to its excellent use of data analytics
and artificial intelligence. India can improve its risk assessment
capacity by implementing predictive modelling and creating a
centralised analytics unit. This strategy is especially pertinent to
India's tax administration since it makes it possible to identify high-
risk cases more precisely and take proactive measures to combat tax
cheating. Using data analytics and artificial intelligence (AI) can
greatly increase the efficiency of tax audits, especially in India where
the tax system is vast and complicated. Similar technology can be
strategically implemented by India's tax authorities to improve
resource allocation and more successfully target tax cheating.

3. India may learn a lot from New Zealand's success with a streamlined
tax regime. Simplifying the tax code can boost compliance as India
works to change it. India can learn from New Zealand's transparent
tax system, which helps it achieve top ranks in international
evaluations, by looking at simplified and uncomplicated tax laws.
India should learn from New Zealand's strategy of streamlining its tax
structure to make it more palatable to a wider range of people. An
easy-to-understand tax structure in India may boost compliance and
promote an atmosphere that is conducive to business.

4. Cooperation with Technology businesses: Governments and

technology businesses around the world are working together to
create a route that is feasible for India. Public-private partnerships
have the potential to expedite the adoption of sophisticated tax
administration software, data analytics tools, and cybersecurity
measures, given India's rapidly growing technology sector.
India's thriving private sector offers many chances for productive
partnerships, especially in the technology sector. India can improve its
digital capabilities and increase the efficiency and security of tax
administration by collaborating with technological companies.

CONCLUSION
As we traverse the landscape of global best practices and innovative policy
recommendations, the prospect of transforming India's direct tax revenue
collection looms promisingly on the horizon. Inspired by success stories
from Estonia's digital metamorphosis to the United States' mastery of data
analytics, each practice converges towards a vision of a reinvigorated Indian
tax ecosystem.
In the realm of digital transformation, Estonia's e-Government system
illuminates a path that aligns seamlessly with India's digital aspirations.
The prospect of a unified digital platform, fortified by blockchain technology,
holds the key to not only simplifying processes but also fostering
transparency in a country marked by diversity.
When used skilfully, data—the contemporary era's money—becomes a
powerful instrument. The enormous potential of artificial intelligence and
data analytics in detecting tax evasion and adjusting the dynamics of risk
assessment is exemplified by the US IRS. The formation of a centralised
analytics unit becomes not only a strategic but also an imperative measure
as India navigates its distinct tax framework.
India might take heart from New Zealand's tax code, which is
straightforward and promotes openness. The lesson here is evident as India
considers tax reforms: simplicity encourages compliance, which in turn
creates an atmosphere that is favourable to economic progress.
Finally, the collaborative endeavours with technology companies stand as a
testament to the power of partnerships. In a nation propelled by a thriving
technology sector, public-private collaborations become the vehicle to usher
in advanced tax administration systems and cybersecurity measures.
As we conclude this journey, it becomes evident that the metamorphosis of
India's direct tax revenue collection is not just a policy goal but a paradigm
shifts in the making. By weaving these global best practices into the fabric of
Indian policy, we can envision a future where compliance is not coerced but
embraced willingly—a future where the fiscal trajectory of India mirrors the
aspirations of its vibrant populace. In the crucible of innovation and
adaptation, the blueprint for India's fiscal triumph awaits its realization.