On the evening of June 28, the government said that it has decided to defer the implementation of 20% Tax Collection at Source (TCS) on international payments made through credit cards under the Liberalized Remittance Scheme (LRS). Card issuing banks, who were supposed to start collecting this tax from July 1, will now do so from October 1. The government also said that TCS would be applicable only on international credit card spends above this. 7 lakhs in a year and not the entire expenditure as originally planned.
The government notified its original decision to implement 20% TCS across the board on May 16, leading to public outrage, especially on social media. Credit card users protested the decision, saying their money would be stuck for months. Issuing banks were concerned about how to deal with customers with multiple cards and the complexity of tracking reversed and disputed transactions.
Wednesday’s press statement The government was shown to have taken this feedback on board, but the episode did little to dispel the notion that it announces policy decisions without much thought and is forced to make changes following the outcry Is.
Two issues must be distinguished here. The first is the thinking behind the decision to levy 20% TCS on international credit card spends. The government is having trouble convincing that the purpose of the tax is not to raise revenue but to catch tax evaders. but as SnapView wrote beforeTax authorities do not need TCS to detect tax evasion as they already have traces of international spending in their huge database of credit card transactions. All they have to do is mine this data to catch tax evaders.
Therefore, the taxpayers were not wrong in complaining that the move would inconvenience them only because the tax authorities failed to make good use of the information already available to them. He also said that this would give the tax authorities another tool to harass honest taxpayers.
The original decision did not improve the reputation of the tax department and neither did Wednesday’s clarification. India is already notorious for policy uncertainty due to such incidents. The flip-flops are not limited to politically sensitive policies like the farm laws, which Parliament was forced to repeal in late 2021 following widespread protests by farmers. The Economic Survey 2018-19 stresses the need to reduce policy uncertainty, so the government is clearly aware of the damage it is doing. Still, the flip-flop continues.
The reason for this is not clear: is there pressure to make decisions quickly or in secrecy? In most cases, consulting beforehand can help avoid much of this chaos and uncertainty. Why should the government wait for public outcry to correct policies? Quick decision making does not necessarily lead to efficient and high quality policy making. And if secrecy comes at the cost of credibility, what’s the point?
These issues can be easily resolved by inviting feedback before announcing decisions. The government should set up healthy mechanisms to simultaneously maintain all three objectives: robust policy making that would not require frequent recalibration, policy secrecy, and a consultative approach in which feedback is taken on board before decisions are notified . Reducing policy uncertainty is especially important as the government makes every effort to attract investors and create a sustainable cycle of private investment to fuel India’s economic growth.
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UPDATE: June 30, 2023, 11:04 AM IST