New Delhi [India], October 10 : Government think tank Niti Aayog recommended a trust-based taxation governance system, to enhance voluntary compliance, reduce administrative friction, and improve the overall efficiency of public revenue management.
In a new working paper released on Friday, titled "Towards India's Tax Transformation: Decriminalisation and TAX BASED Governance" it said trust-based governance represents a shift from coercive or enforcement-heavy tax administration toward a mutual accountability framework where taxpayers and authorities collaborate through information sharing, digital innovation, and simplified procedures. This approach fosters a culture of compliance rooted in confidence rather than fear.
The study highlights that trust, transparency, and predictability are critical pillars for modern tax systems, especially as economies become more digital and citizen expectations evolve.
The paper points out that traditional compliance models, which are largely driven by audits and penalties often fail to address the underlying causes of evasion, such as complex regulations, administrative opacity, and lack of reciprocity. In contrast, trust-based systems, such as cooperative compliance programs adopted in OECD countries, have shown measurable success in narrowing the tax gap and increasing corporate transparency.
The report cites international examples where advance rulings, horizontal monitoring, and open communication channels between tax authorities and businesses have reduced litigation and improved revenue outcomes. It also notes that India's recent reforms, including the Faceless Assessment Scheme and Taxpayer Charter reflects a similar vision of creating a predictable, non-adversarial environment grounded in mutual trust.
The study emphasizes that trust cannot be legislated; it must be earned through consistent institutional behaviour. This involves ensuring fairness in assessments, timely grievance redressals, and data privacy protections. Trust-building also requires governments to demonstrate fiscal accountability, using tax revenues transparently for public welfare to strengthen citizens' perception of value received for taxes paid.
The paper highlights the role of technology in reinforcing this trust ecosystem. digitalization of tax processes, not only minimizes discretion and corruption but also empowers taxpayers with real-time data access and simplified filing mechanisms. However, it cautions that technology alone cannot substitute for ethical governance and empathetic policymaking.
It said, sustained compliance arises when taxpayers believe that authorities act justly, use resources responsibly, and respond promptly to legitimate concerns.
Furthermore, the report calls for capacity building within tax administrations to balance enforcement with engagement. Training officers to interpret data intelligently, communicate with empathy, and mediate disputes fairly are seen as essential steps toward cultivating long-term trust.
Finally, the paper concludes that as global economies recover from fiscal shocks, a trust-oriented governance framework can serve as a stabilizing force enhancing compliance without eroding citizens faith in public institutions. Policymakers, therefore, must prioritize trust as a core policy objective, integrating it into every aspect of tax design, administration, and communication.
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