Essay · Section A9 October 2026

Trust is a better tax collector than fear.

Picture a small cloth merchant in a district town, in whose house the word “inspector” is spoken in a lowered voice. He pays his taxes, but he lives with two fears: that he had made some honest mistake in a form, and that an honest mistake would be treated as a crime. Fear does not make him more honest; it makes him more anxious, and it makes him keep his business small so that nobody will notice it. On 8 October the 57th GST Council took a decision that could change the mood in houses like his. This essay argues that a State collects more, and collects it more fairly, when citizens trust it than when they fear it. It also accepts that trust is not a gift the State can simply announce; it has to be earned, and it has to be backed by the ability to catch the few who betray it.

The idea is old in India. Kalidasa, describing the ideal king Dilipa in the first canto of the Raghuvamsha, wrote: “प्रजानामेव भूत्यर्थं स ताभ्यो बलिमग्रहीत्। सहस्रगुणमुत्स्रष्टुमादत्ते हि रसं रविः॥” He took tax from his subjects only for their own welfare, as the sun draws up water from the earth only to return it a thousandfold as rain. The verse does not say that the king was feared. It says the people could see where their money went. A citizen who sees the rain does not resent the sun. That is the first meaning of trust in taxation: a visible return, in roads, schools, clinics and courts that work.

History also shows what fear produces instead. England introduced a window tax in 1696, assuming that the number of windows was a fair sign of wealth. Householders responded by bricking up their windows, and for more than a century and a half people lived in darker, less healthy rooms until the tax was finally repealed in 1851. The State did not get honesty; it got hiding. Today’s news has a modern version. The government told the Lok Sabha that stubble-burning incidents fell 90 per cent in 2025 against 2022, but the count rests on polar satellites that pass only between 10:30 am and 1:30 pm. A multi-satellite estimate puts the fall near 30 per cent, and an ISRO-led study found farmers shifting to evening burning. When rules are enforced only by watching and punishing, people learn the hours when no one is watching.

Economics reached a similar conclusion by an unexpected route. In 1972 Michael Allingham and Agnar Sandmo built a famous model in which a taxpayer pays only after weighing the chance of being caught and the size of the fine. It was elegant, but later researchers noticed that, with real audit rates and penalties as low as they are, the model predicts far more evasion than we actually see. Most people pay more than fear alone can explain. They pay because they think others are paying too, because the rules seem fair, and because they believe the State will treat them decently. Economists call this “tax morale”. It is the cheapest tax collector a government can have, and the easiest to destroy.

India has learnt both lessons at a cost. The retrospective amendment of 2012, passed after the Supreme Court ruled for Vodafone, told every investor that a settled matter could be reopened by the State at will. It brought years of arbitration and damaged India’s reputation, and in 2021 Parliament itself withdrew it through the Taxation Laws (Amendment) Act. The repair has been slow and deliberate: faceless assessment and a Taxpayers’ Charter in 2020, and the Jan Vishwas Act of 2023, which removed or softened criminal penalties in 183 provisions across 42 Central laws. The GST Council’s decision belongs to this line. Officers will no longer arrest before prosecution; the prosecution threshold rises from ₹1 crore to ₹5 crore; the general penalty falls from ₹25,000 to ₹10,000; disputes below ₹10,000 will not even get a show-cause notice; and 90 per cent of refunds will be sanctioned within three working days. The message is simple: the honest small trader should not pay for the State’s suspicion of the dishonest few.

The counter-argument must be heard in full, because it is not foolish. At least four States objected to dropping the power of arrest, and their fear is grounded in experience. Fake-invoice rings create shell firms, claim credit for tax never paid and vanish within weeks. A slower path through the courts may find only empty offices. Trust that is not checked becomes an invitation. There is also a deeper objection: trust in the State cannot be declared by the State. In Panna, where tribal families have stood in water for a month demanding fair compensation for the Majhgaon dam, a revenue officer was caught taking a bribe of ₹47,000. A citizen who has met that officer will not believe a Taxpayers’ Charter merely because it is printed. And some fear is necessary: no society has run on goodwill alone.

These objections do not overturn the argument; they refine it. The eighteenth-century Italian thinker Cesare Beccaria argued in On Crimes and Punishments that the certainty of punishment deters more than its severity. That is the bridge between trust and deterrence. A State that arrests on suspicion is severe but uncertain: it frightens the honest and often misses the clever. A State that matches every supplier’s return with every buyer’s claim, flags a new firm that issues huge invoices in its first month, and prosecutes quickly with evidence is certain without being cruel. The honest taxpayer then sees fewer visits, and the fraudster sees a higher chance of being caught. Trust for the many and certainty for the few are not rivals. They are the two halves of one design, and data, not the threat of handcuffs, is what joins them. The Centre must also share that data with States, so that the States that gave up a weapon are given a better one.

Trust also has to travel in both directions. A State that wants citizens to trust it must keep its own promises: refunds on time, rules that do not change backwards, officers who do not take bribes, and compensation paid before a village is drowned. Every delayed refund and every arbitrary notice is a withdrawal from a bank account of goodwill that took decades to fill. Kalidasa’s sun is trusted because the rain actually comes.

Think again of the cloth merchant. He will not become a saint because the inspector stops arriving unannounced, but he may expand his business, issue proper bills to every customer and sleep better at night, and the State will collect more from a larger shop than it ever did from a frightened small one. Fear can make a citizen pay once. Trust makes him pay every year, and makes him proud to. The task of a good administrator is not to choose between them but to place them correctly: trust as the rule, certain punishment as the exception, and the State’s own honesty as the foundation of both.