The contrast could not have been more striking. On one side were two fugitives and tax-evaders - Lalit Modi and Vijay Mallya - celebrating the latter's 70th birthday in London, openly mocking the tax system. On the same day, India's I-T department sent a blunt email to taxpayers - mostly salaried professionals - informing them that their refunds had been put on hold due to a 'mismatch' in their returns. Two parallel realities: evasion ignored, and compliance questioned.

This is no accident. It's a design choice: a tax system that squeezes captive taxpayers, while sparing those who are harder to tax.

Also Read | India's time for power move to cut reliance on China and others


Its biggest casualty is India's salaried middle class, for whom compliance is not an option but a compulsion. Taxes are deducted at source on salaries, FDs, savings accounts, rental incomes, professional fees, property transactions, as well as on stock and bond market gains. They do not just pay taxes, they prepay them. When taxes on consumption are added, a salaried middle-class person in a metro is likely to part with as much as 45-50% of her annual income.

Little wonder many taxpayers are protesting. Take Bengaluru-based entrepreneur Rohit Shroff, who paid ₹4 cr in GST and I-T over 12-18 months, yet faced repeated notices and audits. In a LinkedIn post, he lamented that India's tax system treats compliant contributors with suspicion and said he's yet another citizen considering moving out of India in 2026.

Complaints of this kind may seem unfair to finmin. After all, recent years have seen lower corporate I-T rates, higher I-T thresholds, and rationalisation of GST rates. Important as these reforms are, Budget 2026 presents a larger opportunity: to reset the state's relationship with taxpayers by recognising them as patriots rather than suspects.Also Read| Budget 2026: FICCI pushes for strenghtening 'Atmanirbharta' in defence, critical minerals

Instead of enforcing compliance with a stick - an approach that has largely failed - it's time to incentivise good behaviour. One widely practised and effective approach is the public disclosure of taxpayers' information. When income and tax payments are publicly visible, taxpayers are far less likely to underreport their earnings, as others can flag discrepancies to authorities. There are precedents for such a policy:

• Norway has made taxpayer information public since 1863. Data are searchable by individuals' names, PIN codes and cities.
• Finland publishes tax information for all individuals every year on Nov 1, a date dubbed by foreign media as 'National Jealousy Day'.
• Tax returns of all Swedish corporations and individuals have been public since 1903.
• Australia, Denmark, France, Pakistan, the Philippines, Sweden, Britain and the US have selectively attempted public disclosure of targeted tax information for individuals and corporations.

Evidence suggests that public disclosure improve compliance. In Norway, the income reported by doctors, lawyers, engineers and other professionals increased significantly after tax information was made available online.

In the US, public disclosure of tax delinquents has been associated with lower levels of tax delinquency. In Pakistan, following one-time public disclosure, tax-filing rate among MPs surged from around 30% to 90%.

There are legitimate concerns that such a policy could erode privacy, and as seen in Japan, expose wealthy taxpayers to threats from criminals. The greatest risk is likely to come from wealthy and corrupt interests who, fearing higher tax liabilities, would lobby against any such reform, as has happened in the US and Italy.

Public disclosure of tax information fits squarely with GoI's model of governance that shifts enforcement from (often corrupt) officials to society. Injecting such sunshine into tax administration would also reinforce building a more transparent and rules-based fiscal system. If implemented annually, this reform could curb black money.

If there is no appetite for such a reform, a more moderate option would be to make disclosure voluntary and offer incentives to those who choose to disclose. This would immediately distinguish honest taxpayers (who opt in) from evaders (who opt out).

Incentives could include, as practised in South Korea, presidential recognition of top taxpayers from each district (one under-35 person, one woman, and one over-35 man), exemption from tax audits, and expedited processing at airport, railway and bus stations. An even more compelling option would be to offer a modest tax deduction - 'honesty premium' - to those who voluntarily disclose their income and tax information.

Incentivising public disclosure would kill two birds with one stone. It would finally acknowledge the quiet honesty with which India's salaried middle class pays its taxes, while also shining an early spotlight on tomorrow's tax-dodgers and fugitives.