Many centuries ago, Chanakya mentioned that taxes should be collected like bees taking nectar from a flower.Prime Minister Narendra Modi is absolutely right in asking people to share a fair tax burden. In a country where more than 39 lakh people buy a three or four-wheeler every year and less than 4 lakh people pay income-tax above Rs 5 lakh, it is absolutely fair on the part of the Prime Minister to expect a fair contribution from citizens towards tax revenue.In the stock market , everything is transparent as all the payments other than ‘dabba’ and ‘grey market’ trades happen via cheque or digital mode. The Prime Minister must plug the loopholes to raise tax revenues like ‘Chanakya’ suggested, rather than using a ‘sledgehammer’ approach for raising taxes, which will defeat his purpose of fair sharing of the tax burden.For years, our taxation policy – rather than tourist authorities – followed the “atithi devo bhava (foreign visitor is like a God) approach.” FIIs and NRIs paid lower taxes, which encouraged round-tripping by capable domestic investors with the help of P-Notes and friendly foreign private bankers.Retail investors deserted the capital market, allowing foreign institutional investors (FIIs) a free accumulation of our equities. In the 22-plus years, they have accumulated about 25 per cent of listed Indian market capitalisation.Fortunately, the government realised sometime back the need to give the same treatment to domestic investors and foreign investors as the colour of the money is same. This level-playing field came ‘better late than never’, after numerous presentations from domestic investors to the regulatory authorities.Hopefully, the government will not go back to the old standards of favouring foreign capital at the cost of domestic capital, by giving preferential rate of taxation to foreigners and higher rate of taxation to domestic investors.The consequence of any disparity between the local and global investors will be a loss of economic independence of India , with foreigners quickly racing to own 51 per cent of listed Indian market-cap sooner than later.It will also encourage the dabba exchange, as domestic investors will use jugad techniques to avoid paying an unfair tax. The P-Note business will also revive with foreign private bankers blessing the government for encouraging their business.India has shaded the ‘gora is superior’ mentality some years ago and we must not accept it again. The government must consider plugging the following loopholes for better collection of taxes, like Chanakya mentioned.Bonus stripping: The government every year loses around Rs 10,000-15,000 crore in taxes due to bonus stripping. The rule for treating bonus shares acquisitions at zero cost allows a person to claim short-term capital loss and avoid playing a fair share of taxes. The government must overturn the ruling in the Bai Shirinbai Kooka case and make bonus stripping void. Let there be no tax planning possible by doing bonus stripping from next year through an immediate action to make the cost of bonus shares proportionate to holding the cost of the original asset.Today, there is a loophole that allows people to convert interest income to tax-exempt long-term capital gains through listed zero coupon debentures. This loophole is costing the government about Rs 3,000 crore a year.FIIs sell their bonds before coupon dates to claim capital gains and avoid paying taxes. The spirit of the law is clear that interest should be taxed. Such loopholes must be plugged on an immediate basis to ensure that fair tax burden is shared.Tax planning through illiquid scripts: There is a cottage industry whereby black income is converted into white through buying of illiquid smallcap shares at lower prices and selling them after a year at multiple times to create tax-free long-term capital gains.Sebi and the I-T authorities have gone after such irregularities in recent times. The government has been losing considerable amount of money because of this.Stock exchanges, Sebi and the I-T authorities should increase surveillance to punish the guilty swiftly as well as exemplarily to create a deterrence. The focus should be to punish the entire chain of intermediaries rather than just the person earning capital gains.Dividend stripping: Sometime back, divided stripping was an acceptable norm of tax planning for mutual funds as well as companies. With moral persuasion as well as deft regulatory changes, Sebi has brought this down considerably. Time has come and it must be stopped completely through stringent implementation of regulatory provisions.Disparity between listed and unlisted entrepreneurs on selling of their business: If an unlisted entrepreneur sells his business, he or she is liable to pay tax. If a listed entrepreneur sells the business, he or she is not liable to pay tax. This is a classic execution issue.In order to encourage retail participation in the equity market, long-term capital gains on listed equity holdings were exempted from taxes a decade back. The intention could not have been to give exemptions to promoters of listed companies who were selling their business and making thousands of crore of profit.The law should provide parity between listed and unlisted promoters, who are selling their businesses. The intention of the law was to encourage retail investors but in execution, it ended up giving thousands of crore in tax benefits to super-rich promoters.Many promoters have taken advantage of the current law to shift their holdings from one holding company to another to increase their cost of holdings to reduce the impact of capital gains at a later date.Let us hope and pray our tax authorities can draft rules that can take care of such planning and our judiciary can implement the law in true spirit.It is important to create a fair and equitable distribution of tax burden. We can do it through the sledgehammer way like we did it in past, which created highest tax rates and lowest tax compliance.We can also do it the way Chanakya suggested many centuries back, by plugging loopholes and creating an equitable distribution of tax burden.The outcome of a sledgehammer approach will mean multiple times growth in the P-Notes market, dabba market, FII ownership, rampant tax avoidance through bonus and dividend stripping and an unfair distribution of tax burden.The other route will lead to better tax compliance through just and equitable distribution of the tax burden, and growth in the domestic economy being funded through domestic capital and India retaining its economic independence through majority domestic ownership of listed market-cap.