Saturday, January 16, 2021

Here is what China needs to learn from India on Tax Reforms

The Ministry of Finance of India has some vital teachings to offer to China. A former Chinese talk show host revealed about tax evasion in the entertainment industry and sent across ripples. This has triggered the debate around whistleblowers and tax reforms. Now given this, China must learn from the Ministry of Finance of India as to how it must encourage disclosures. China should take leads from the Tax Informant Reward Scheme of the Ministry of Finance of India. The scheme was updated in April to make it even more effective and widening its scope. 

India updated its tax informant scheme to hike the reward ceiling from the equivalent of USD 22,000 to USD 147,000 for hiding income. The reward for disclosure on black money is now set at USD 734,000 by the Ministry of Finance of India. Compared to this in China, the disclosure incentive does not go beyond USD 15,400. Learning from the benchmark set by the Ministry of Finance of India, China should look to increase its reward limits.

To make the tax systems more effective and clamp down on undeclared incomes there must be suitable tax reforms in line with the advancements in technology. The tax reforms should be such that the department should play major roles rather than Whistleblowing becoming the leading method. Whistleblowing must only be looked as a supplement to tax reforms and functioning of the tax departments and not as an alternative.

The debate should however not be limited to just increasing rewards. Parallel to this the related laws and regulations to need to be made more effective. There must also be a mechanism to offer better protection of the whistleblower’s information as well as their own safety. At the same time, the privacy of the citizens mustn’t be breached in order to collect information. Yes, people must be encouraged to disclose incomes but the tax department to needs to be revolutionised to scrutinise better.

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