CBIC To Focus On Behavioural Patterns Of Taxpayers To Improve GST Compliance

Soon, GST officers will study the behavioural pattern of certain taxpayers to nudge them to comply with tax laws, in a departure from the current practice of focusing only on deterrent action to check evasion.

The Central Board of Indirect Taxes and Customs has set up a "Nudge Team" to formulate a strategy on studying behavioural patterns of taxpayers and use segmented approach to encourage them to pay taxes, an official said.

The plan is based on "behavioural interventions" or "non-deterrence approach" adopted by countries like the U.K., Australia and Mexico to frame policies and increase tax collections.

“From the behavioural pattern, the department will segregate taxpayers into different categories like ‘disengaged’, ‘resisters’, ‘triers’ and ‘supporters’,” the official said.

The official said in cases of non-wilful defaulters, the tax department would adopt a soft approach to persuade them to comply with tax laws by sending them personalised emails reminding them about the default in tax payment cycle.

Efforts will also be made to educate these taxpayers about provisions like payment of taxes in installments in case of liquidity crunch, and other benign provisions of the tax laws to enable them to comply with statutory provisions.

Those who do not comply with tax laws and deliberately evade their responsibility would be categorised as "disengaged", while those who view the system as oppressive but can be persuaded if their concerns are addressed will fall under the category of "resisters".

"Triers" will be those who are willing to comply but face difficulties in paying taxes due to various factors. "Supporters" will be categorised as those who willingly comply with tax laws and support the system.

“Tax officers will adopt a different approach to deal with different categories of taxpayers based on behavioural pattern,” the official said, adding the Nudge Team will sensitise the field officers about the new approach to persuade entities to comply with tax laws.

The first meeting of the Nudge Team will be called soon by the principal director general of GST to decide on the strategy at the field level.

The official said that as part of the "behavioural interventions", emphasis ought to be on social norms, perceptions of fairness and tax morale while maintaining a 'non-deterrence’ approach.

Indirect tax reform Goods and Services Tax was rolled out on July 1, 2017. With GST systems now stabilising, the focus of CBIC is now on increasing compliance and checking evasion.

The government has also set up Directorate General of GST Intelligence to investigate cases of tax evasion and conduct search and seizure operations under the GST Act, and erstwhile Excise and Service Tax Act.

AMRG & Associates Partner Rajat Mohan said the concept of soft-approach by the tax department is a novel idea. “However, the taxpayer needs assurance that this would not be a mere paper scheme, confirming that benefit could be conceded at the grass-root level.”