Tax reforms in India are part of a broader set of fiscal reforms. The first attempt to modernize and rationalize India’s fiscal strategy was carried out by Rajiv Gandhi in 1985 with the ‘Long Term Fiscal Policy’, which laid out a five-year roadmap with a well-defined set of rules and targets. The real major boost to tax reforms came in 1991 with the Tax Reforms Committee’s recommendations during the P.V. Narasimha Rao government. The reforms discussed and debated today were initiated during the early 1990s. The committee’s recommendations included broadening of the tax base, minimizing exemptions, having a single value added tax for all domestic production, expansion of tax deducted at source, mandatory permanent account number, reduction of direct tax rates on personal and corporate incomes, and the use of technology to make tax payment user-friendly as well as to reduce tax evasion. Even if everything could not be completed during Manmohan Singh’s tenure as finance minister, it was continued, albeit sporadically, by subsequent governments. In 2003, the National Democratic Alliance government legislated the Fiscal Responsibility and Budget Management Act to keep fiscal and revenue deficits under control.

While the system of tax collection and payment has become considerably easier over the years, there is still the fear of the taxman and his discretionary powers of harassment. There is also a belief that the honest taxpayer is sometimes at the receiving end of this power while the big fish are free to have ‘arrangements’ that minimize the probability of them being disturbed. These perceptions have resulted in a trust deficit between the taxman and the taxpayer. The latest taxpayer charter announced by the Narendra Modi government is an attempt to address this issue by empowering honest taxpayers by giving them certain rights. It is supposed to have statutory status. It will make the encounter (if necessary) between the assessor and the assessee faceless and online. In fact, the finance minister has gone to the extent of claiming that the role of the income tax department will be that of a facilitator. One hopes that this will erase the remaining apprehensions of individual taxpayers. This charter is not tax reforms per se. But it has the potential to make the tax system more efficient and rule-based.