A world of benign tax terrorism in the 21st centuryby Opinion Express April 27, 2018 0 comments
Ineffective redressal system and frequent policy changes have unleashed tax terrorism. The only remedy is to deal with this situation in which both, the taxpayer and the tax collector, are assuaged.
Veda Vyasa had laid down in the Mahabharata that “a king should collect taxes like a bee collects nectar from flowers, painlessly.” In a modern and evolving economy, it is time we start to treat the taxpayer as a nation-builder, and one who deserves respect. According to the Central Board of Direct Taxes (CBDT) data, only 2.05 crore Indians, or 1.7 percent of 120 crore Indians paid taxes in 2015-16. That is because India is a ‘low- income’ country and 90 percent of Indians don’t fall in the tax bracket as they earn less than Rs 2.5 lakh a year. Hence, they are exempted from paying taxes.
Consequently, both the salaried and business classes, despite paying their fair share of taxes, continue to be targeted by tax officials. Before the General Election, the Government surely needs some big private sector catches to affirm its anti-corruption credentials, but going after the salaried class is not the solution. If the IT department continues to maintain its archaic and adversarial stance, neither will the ease of living improve, nor will the ease of doing business.
An area of concern during the BJP- led NDA rule is that tax-terrorism has perpetuated since the Congress regime, one that Prime Minister Narendra Modi and Union Finance Minister Arun Jaitley both promised to undo. In tax-speak, ‘terrorism’ is unleashed through IT department’s arbitrariness, uncertainty of policies, prolonged litigation and ineffective redressal and dispute resolution measures. A useful antidote to terrorism of any kind is a corrective and remedial action which assuages both the aggressor and the aggrieved, the taxpayer and tax collector.
There are two types of crooks that the Government must nail: The citizen crooks and the Government crooks. While the Government has gone after the former and succeeded in enhancing the taxpayer base; the latter continues to enjoy a level of immunity with no Lokpal ombudsman yet in sight. The third anomaly is that electoral reforms continue to favour anonymity in India even as advanced democracies move towards greater transparency. How else does one explain the amendments to the Finance Bill 2018, which exempts scrutiny of foreign funds to political parties with retrospective effect from 1976, granting them virtual immunity? The retrospective concession awarded to political parties makes the Foreign Contribution Regulation Act (FCRA), a threat to the electoral system as foreign donors will continue to have powers in influencing Government policy as it legitimises donations from Indian subsidiaries of foreign companies, despite the Government’s claims to the contrary.
What’s good for the goose is good for the gander. So, if the Government wants to eradicate black money, the work and fiscal ethics of citizens, bankers, bureaucracy and political parties must simultaneously be elevated. Policy-makers cannot be selectively pro-reform in some avenues and status quoists in other areas.
Capitalist societies are dominated by a clique of elites who work in a clique circle to preserve and perpetuate their privileges. While Modi has broken that sphere of influence of industry lobbies and ‘caucuses’ prevalent since the Indira-Rajiv Gandhi era, “he has also made India’s rich powerless and fearful” — a stance attributed to his shifting policies and social posturing to where the votes are, curbing the power business lobbies once held on influencing Governments. “Never in our economic history since 1991, has big business been so powerless”, as entrepreneurial “fear of doing business overtakes ease of doing business”, just when good corporates are seeing a partial revival in the demand cycle. So, should sinners and saints be met the same treatment?
Another reason why tax-terrorism has persisted into the NDA regime is that historically, whenever the Government was faced with revenue shortfalls, the IT department set unrealistic targets for its officials to raise demands. By incentivising IT babus, it makes them take an adversarial stance bordering on official extortion. A report by the Parthasarathi Shome Committee had recommended that such illogical tax collection targets should not be laid down. For instance, it is futile to expect tax revenue to grow at 20 percent when the economy is growing at about seven per cent. Lowering tax rates, a non-adversarial and benign stance by Governments holds the key to greater compliance world over.
The issues that have vexed taxpayers revolve around imposition of retrospective legislation of UPA times, mindless revisions and reopening of cases, coercive actions during search and survey and creating inflated or artificial demands to meet ‘targets’. As per the Economic Survey 2017-18, pending tax disputes before the Supreme Court are 9,300 cases, the High Courts in excess of 52,000 cases and the Appellate Tribunal stands at 1,75,000 cases. Only big corporates can afford to go to the High Court in appeal.
Smaller assessee is at the mercy of tax officials, whose mindset must change from tax collection to a provider or facilitator of a service to honest citizens. Ideally, the taxpayer should be considered as a customer by the Income Tax Department and assigned a Relationship Officer, as we have in banks, who would be responsible to sort out grievances by interacting with various officers on behalf of the taxpayer.
A report by the World Bank and PwC, ‘Paying Taxes 2018’, ranked India 119 out of 190 nations in ease of paying taxes. The report allows tax authorities to compare and adapt to the most efficient practices of advanced economies. While a task force has been constituted to review the Income Tax Act, 1961, and draft a new Direct Tax Law in consonance with an evolving economy, which will be a lengthy process, an accountability provision can be mandated where an assessing officer is made accountable for raising irrational demands.
Also, the Government must chalk out a plan to reduce pendency of litigation. An ideal tax reform committee should be headed by a retired Supreme Court judge, along with eminent tax professionals, economists and constitutional experts — a panel who can envisage the needs of a growing economy over the next 50 years to make the new Income Tax Act taxpayer-friendly before the draft is approved and finalised.
While the CBDT has notified a new centralised communication scheme for serving e-notices to taxpayers as part of the Government’s ambitious plan to usher in a country-wide paperless system of interface between the taxman and the assessee, little will be achieved though the Government assumes its a faceless assessment. Adopting anonymisation techniques which leave search operations to big data analysis to identify scrutiny cases through algorithms may be objective and computer-generated. However, while the assessee may not know who the IT official is and vice versa, the babus will find a way to meet out of the office to ‘fix’ the problem.
To end on a humorous note, there are, of course, unusual ways to effect a crackdown on illicit wealth if we follow the Saudi Arabian example. A video clip went viral last year, as it riveted, seeing powerful princes and leaders in Riyadh held captive within the opulent confines of the Ritz Carlton where “the world’s most pampered prisoners had every comfort except freedom”. Those suspected of siphoning illegal commissions from multibillion-dollar Saudi Government contracts, were holed up in a one-of-its-kind gilded prison, as 1,700 individual bank accounts were nailed and frozen. Possibly, such a luxurious prison could be the resort for our big-ticket loan defaulters and fugitives like Nirav Modi and Vijay Mallya. Welcome to the world of benign tax terrorism in the 21st century.
(The writer is an author and columnist)
Writer: Bindu Dalmia
Courtesy: The Pioneer