Taxpayer and the Art of Taxation

E. M. G. Edirisinghe

NEW SCHEME: The Department of Inland Revenue in its 75th year of collecting revenue to endue the Treasury, has for the first time come out with a scheme to promote a friendly image towards the taxpayers who bear the heavy burden of maintaining the State machinery and providing a welfare state for the under-privileged citizens of the country.

"Like the bee that gently draws the nectar from the flower, collect the gifts and revenue in accordance with the prevailing ancient customs without causing suffering to the people."

"Like those who eat the fruit by breaking the branch that bears the fruit, do not violate the rules of law or cause harm to the people when collecting revenue."

That was how a 16th century Sinhala poet while being emphatic on setting out the rules and norms for the King

 to collect revenue from the people, also laid down how revenue should not be collected. The ancient monarchy which was rather despotic had now disappeared giving way to the present representative democracy.

Times and laws have changed vastly distancing us from the past. But, the traditional norms and practices that governed the rules of collecting revenue for the State remains still valid in spirit, freshness and execution. So what is left for us today, is to faithfully maintain and follow the noble traditions that had descended down the generations which we have inherited from the past glory that was ours.

In the year 2006, the Inland Revenue share of current total government revenue exceeded 25%. That alone highlights the magnitude of its importance as a revenue gathering institution.

Thus the Department of Inland Revenue while playing a major role to swell the credit side of the State balance sheet and to strengthen its foothold on the national revenue structure, has to perform an unenviable task with great devotion and finesse.

That places the Revenue officers on a delicate scenario where justice and politeness should necessarily prevail at all times at all levels in the province of imposition and collection of tax.

Taxation is only one aspect of the implementation of the fiscal policy of the government. While taxes bear the cost of administration, defence and welfare of the State, it also diverts and directs the national economy on a specified path which the government wish it to take.

Tax laws replete with intricacies of imposition and collection of tax confer legal authority as well as the necessary teeth for the Department of Inland Revenue to gather revenue. However, in practice it is not really the force of statute or the size of the machinery, but the art of taxation that rakes in most of the revenue readily, regularly and respectfully with least pain to the taxpayer and least force on the tax gatherer.

The laws whether divine, moral, civil, criminal or customary claim unequivocal allegiance and obedience from the people who are subject to law and order. Yet, all laws including those divinely inspired are honoured everyday, mostly in the breach. All these laws are framed and implemented for the good of the society. However there is a fundamental difference between the tax laws and the other laws of the country.

The former is designed to recoup a part of the monetary and economic advantage derived by the people through the operation of other laws enacted to regulate and organise the society and its behaviour, economically as well as politically.

Therefore, the application of all tax laws organically differ in both spirit and enforcement. Similarly the response of the people to tax laws too, differ because taxpayers are called upon to pat with a part of their hard-earned or soft-earned money irrespective of their social or professional standing.

From a tangled social environment in which a variety of laws operate, respect for law and order is expected to produce a peaceful and friendly society at no material or spiritual cost to society.

On the other hand, the revenue that tax laws yield, goes to improve the material life and to infuse social stability to the people. Tax is a demand to part with a part of one's material possession which everyone crave to own. Therefore, the enforcement of tax laws necessarily becomes onerous, delicate and sometimes unpleasant.

Ironically a taxman is simultaneously a prosecutor, defender, valuer, lawyer, accountant, witness, collector, record-keeper and finally a judge too, all systematically rolled into one composite role.

Thus this multifarious task cast on him claims a heavy toll on his alacrity and wisdom for officiant, honest and humane discharge of duty. The pressure on him to dismantle the true bureaucratic garb that cloaks him, is heavy and enormous.

The typical bureaucrat or the normal white-collar worker who performs on general work norms and standards, do not help in the art of taxation. One's cleverness and resourcefulness to conform to norms set for professions we are familiar with could be of very limited use in the work at the Inland Revenue, which demands the presence of a strong constitution and a polite disposition developed through learning and discipline.

The government requires funds to commence and maintain military and civil services and also to provide amenities for the people in fulfilment of the mandate given to it. And taxation is one way to realise such goals and aspirations of the people.

A fundamentally different atmosphere exists between that in the Department of Inland Revenue and in any other government department. While the latter is established, constituted and maintained to provide essential services to the people, the former is entrusted with the difficult job of collecting money to finance such services and projects provided by every other department or institution.

In brief, whereas the public at the Revenue gets 'nothing' in return that brings him immediate personal benefit, at every other place, any payment they make is immediately repaid in kind or service.

Therefore, if the customer is 'king' at such other places providing services, he is 'god' at the Inland Revenue. In this factual and moral situation, the taxpayer who remains largely anonymous, silently earns unpublicised exalted social recognition, which the Department is now planning to give.

Just as the public (taxpayers) calling at the Inland Revenue are emotionally and temperamentally different, the officers (tax-gatherers) serving them too, are morally and intellectually different.

They are entrusted with the task of gathering taxes due in accordance with the law; while doing so, they should blend their steady and subtle official act with grace and amiability without allowing even a marginal encroachment on the legal and moral immunity enjoyed by the taxpayer.

Behind each tax file, there exists a human being who is on a mission to make life materially comfortable for himself and the people in general. Therefore, the cloak the taxman wields should not shield the human being in him who should use all his resources with a humane touch to harness the tax legally due to the State.

That part a taxpayer parts with, accrues to his personal earnings and savings by his investment in determination to earn more.

He honestly believes that part of his earnings which goes to the government, is spent wisely and honestly to the greater good of the greatest number. Then he will be happy and equally content to find that he was even minutely or indirectly contributory to bring about a qualitative social transformation among the people.

Unlike in the instance of contributions to charity and religious places, taxes do not go to a clearly defined destination. However, payment of taxes is like giving to a charity except that there is no clear intention to give voluntarily. Tax is a compulsory payment to the State for which no Culogies were sung or plaques were installed.

Also, taxes unlike charity, do not ensure a niche in heaven for the taxpayer. Hence payment of tax is more a generous act bringing oneself either satisfaction or frustration. Its unidentifiable and non-refundable nature itself makes payment of tax a noble act borne by honest men and women.

The state in the meantime builds the necessary infrastructure and provides security and creates a conducive atmosphere for gainful economic activity by the taxpayer. The income so generated by them continuously brings in revenue to the State which is recycled to maintain services for the people. In the circumstances, it is justifiable and reasonable that a portion of one's income should go to build the state.

Provisions dealing with implementation of tax laws enshrined in the tax statutes, circumscribe the area within which the law is enforceable and operative. Similarly, necessary legal and organisational protection is also therein provided to the taxpayer within the confines of a legal framework.

Within this frame exists an comprehensive legal environment in which the tax officer and the taxpayer meet each other on a ground of mutual trust and understanding to agree on the quantum of tax to be offered to the coffers of the State.

Ironically but correctly revenue does not differentiate between money earned honestly or dishonestly, legally or illegally all that is brought into the tax net. It may appear ludicrous for one arm of the law to arrest a person engaged in an illegal trade and for another arm of the law to bring him before the law, treat him as a gentleman and ask him to pay a part of his illegal earnings to the State.

In between these two opposing ends, the government cannot encourage unjust enrichment by 'penalising' only the honest, lawful trader while the other is left untouched. It is like a physician attending to a wounded soldier as well as a criminal who is wounded in a criminal act.

The annual return of income furnished by a taxpayer unrolls a series of separate statutory act for both the taxpayer and the tax officer. This basic declaration is 'sacred' to the extent that it is sworn to be true and accurate.

Unless under a due process of law, its contents cannot be divulged to a third party. The tax-officer is bound to honour that declaration made under an oath and shall not negate or reject it without a valid reason. The mutual trust the taxpayer and the tax-officer place on each other builds a bridge of confidence and understanding which dispels any element of distrust and fear based on flimsy and futile grounds.

It is the golden rule that Revenue "collects not a cent more or a cent less than what the law permits." Similarly, the taxpayer is bound to pay not a cent more or a cent less than is what is legally due.

In this mutually binding background, one may flex these two rules to squeeze out the essence of collection and payment of tax to mean that even if revenue collects a cent less, it should not collect a cent more, and the taxpayer on the other hand, even if he pays a cent more, he should not pay even a cent less.

There lies the legitimate and honourable meeting point for the two of them to mutually discharge the burden legally and moral cast on them. Moral and legal element found in the enforcement segment of the law will automatically fuse to create an atmosphere in which cordial and fraternal relations will develop to overcome the rigours, if any, of taxation.

In the light of the above observations, the relevance of the two verses quoted from Budugunalankaraya by Ven. Veedagama Maithreya is inspiring and timely. The taxpayer needs social and environmental protection.

The laws of the land should not be violated or vitiated to gather revenue. The measures adopted should conform to accepted moral standards.

The gentleman in the tax-officer should merge with the official in him to ensure a right climate for uninterrupted flow of revenue. That is the art of taxation that transcends the force of law enforcement.

Thus we witness that even centuries later our tradition of gentle touch of the bee on the earnings of the people remains refreshingly unchanged, untainted and very much alive.