Tax evasion is not a modern concept since it traces its origins back to when the concept of taxation emerged in Kautilya’s book ‘Arthashastra’ which refers to different types of taxes and punishments as a countermeasure for evading them. Low tax compliance is a matter of concern in many developing countries, limiting the capacity of their governments to raise revenues for developmental purposes.
Higher tax compliance
Ensuring higher tax compliance has been, and continues to be, one of the key objectives of tax administration, and to achieve that, we have witnessed various measures taken by the government to clamp down on tax evaders.
In its race to restrain and dig out devious taxpayers, the government has come out with a plethora of information obtained during demonetisation and GST filings. Information is a very powerful and useful tool, but not by itself; its improvement has to be fully integrated into the overall tax administration strategy.
I-T department’s Project Insight
A move in this direction is the contract with L&T for the development of Project Insight which will help the income tax department to conduct detailed data analysis of the taxpayers’ financial and personal data and find gap between income spent and declared. Inspection of taxpayers’ financial data, personal information and tax information, is capable of unearthing discrepancies and highlight grey areas, and would thus check tax evasion.
After various strict steps taken in this direction, the government has now planned to craft a database wherein income of the taxpayers could be matched with the GST returns filed by them. With GST returns tied to the returns submitted to the income tax department, manipulation of raw material and goods supplied would be tough, almost impossible, as unlike the earlier tax regime, the department would have GST trail to check under-reporting of income or exaggeration of expenses.
It is imperative that the GST return is tied with the financials submitted to the income-tax office. Any discrepancy would be questioned by the income-tax office and the taxpayers would be required to explain the deviations. So one should be prepared to answer a tax officer if the GST return shows a significant increase in the turnover as compared to the previous years.
Moreover, to bring more taxpayers under the tax net and to get hold of the law breakers, their phone records, credit card transactions and social media activity are also being scrutinised. Also if one has posted a picture of a new car on a social platform because the government is going to be ceaselessly vigilant.
Satellite images for benami properties
Going a step ahead, the department will also have access to satellite images from the Indian Space Research Organisation (ISRO) of pieces of land for a specific period of time, so it will be able to identify those owning and maintaining benami properties. This satellite imagery will also help the government to keep a check on those agriculturalists claiming exemption from taxes, as, in case no standing crops are found in the images obtained, the assessee would be denied such exemption.
While the Project Insight is still in its initial stage, with the prompt actions that the present government is known to take, it is only a matter of time that such a system is developed for digging out tax evaders.
It is thus clear that the government with such stringent steps is trying to make India’s taxation system efficient and compliant. In the past too, we have seen the government achieve milestones in this direction. This not only conveys the message that the government is not afraid to press compliance and tighten the noose on the evaders but also says a lot about its competence and commitment to make Indian tax system transparent, clear and simple.
The writer is executive director, Nangia & Co LLP. Inputs from Vasudha Arora