As the July-end deadline for filing returns approaches, the government has been talking tough. Finance Minister P. Chidambaram issued ‘‘a strict warning against income tax evasion’’ and promised to pursue ‘‘every single person’’ whose name is thrown up by the annual information returns, especially those who have bought property over Rs 30 lakh or spent Rs 2 lakh on credit cards. His objective is clear—the FM wants direct tax collection to ensure that borrowing limits set for the current fiscal and the budget deficit target is not breached.
On cue, Income Tax (IT) officials have been making threatening noises, unfortunately with little credibility. Picking on a few evaders is not going to clean up the system or boost revenues in a big way. India suffers from rampant tax evasion, only because the system is deliberately opaque and inefficient to allow politicians, political parties and armies of government officials to collect and circulate speed money.
Once in a while, an opposition party leader tries to embarrass the government by pointing fingers, but the issue is never pursued to its logical end. For instance, when BJP spokesperson Prakash Javdekar recently told the FM to probe Lalu Prasad Yadav’s cash payment of Rs ten lakh to the pubic sector Ashoka Hotel on May 4 for his daughter’s wedding.
The Railway Minister’s single transaction is five times the annual credit card expenditure that will attract IT scrutiny. A cash payment of Rs 10,000 requires a Permanent Account Number (PAN) and three cash withdrawals of Rs 10,000 attract the Cash Withdrawal Tax; will the FM tell us if Lalu Yadav complied with his rules for ordinary citizens and how did he earn the money? Although the BJP raised the issue, it is unlikely to hold out for an answer; instead there will be other deals.
Notice how Rahul Mahajan celebrated his engagement in the same Ministerial bungalow that saw a death and drug-fest within days of Pramod Mahajan’s death? After pretending that the Mahajan family will not get an extension, the UPA government has quietly given them a three-month extension; would it have happened without heavy-duty string pulling by top BJP leaders? Anything that affects politicians as a class or threatens to block their source of funds is invariably given a quiet burial.
The son of a top political leader was caught carrying a load of cash during the Tamil Nadu elections recently. If that was hushed up without media exposure why would Lalu Yadav’s cash be questioned? The FM must clarify that ‘‘every single person’’ whose name is thrown up by the Annual Information return will be questioned so long as he is not a politician or government employee.
Chidambaram says the IT Department ‘‘was not targeting the poor, the lower middle class or the salaried people but high net-worth individuals’’ and that there would be no harassment if ‘‘returns were filed properly’’. Well, the poor and middle class are not in the taxable bracket and salaried persons already have their tax lopped off at source (very few have ‘other income’). The super rich and the politicians are never touched although they launder large sums of money overseas, hold thousands of benami bank accounts, control cooperative banks and keep them out of exclusive RBI supervision and launder money through thousand trusts and charities. It is safe to bet that these will remain untouched.
All the fire and thunder from the FM and the IT Department is aimed a relatively small segment of individuals, businessmen, traders and professionals who also follow the leaders in evading taxes. If the Finance Minister were serious about plugging rampant tax evasion and not harassing all tax payers, he can plug the loopholes without public hoopla.
If Indian companies are able to monitor large international utilities from their Bangalore offices, they can also replicate monitoring systems to allow revenue agencies to integrate their systems with those of banks and credit card issuers. If computerised social security data in the US has been fairly reliable for decades, we can surely create a PAN issuance system that is not made redundant due to fraud and duplication.
Leading bankers, under pressure to maintain impeccable Know Your Customer (KYC) data tell horror stories about the pressure they face to accept ‘benami’ accounts of politicians. They are often forced to turn a blind eye to such accounts. In fact, what Roopalben Panchal and others did in opening tens of thousand Demat accounts is fairly routine in the banking industry; unlike Lalu Yadav the more savvy politicians don’t even deal in cash. Their fictitious bank accounts are usually linked to credit cards and PAN cards in the same fake identities.
Cleaning up the mess of fake PAN cards and linking bank and insurance data to the IT network through a computerised system will plug tax evasion. This will also reduce, if not eliminate corruption, by making it difficult to use and circulate black money. Another disincentive to evasion would be sensible tax policies, designed for the Indian situation without pointless international comparisons.
India certainly has the technological and managerial capability to design and maintain such a system but we lack the political will to create it. Will the FM ensure that all cooperative banks are fully computerised, networked with the IT Department and adequately supervised?
That alone would unearth enough of tax evasion to meet his direct tax targets. But the FM knows that already. Did he not tell us about crores of rupees worth of cash transactions that are routed through the banking system two years ago? There is still no reduction in cash flowing through banks. Why don’t we see some systemic changes where they are needed? We are indeed impressed at the FM’s disclosure that 1,752,652 high value transactions had been reported under the annual information returns involving 660,000 separate individuals, of which only 184,980 had quoted PAN numbers.
Go after these 4.75 lakh evaders by all means, but also punish the shops and banks that failed to demand PAN numbers. Also, promise us that the IT department’s activism will be even handed and not restricted to those without political connections.