Given the problem the taxman is facing in getting details of various people alleged to have taken their black money overseas—the Swiss Ambassador to India has publicly stated his country would not entertain a fishing expedition, the Indian taxman had to have proof of tax evasion—it is not surprising that the Special Investigation Team (SIT) on black money should be frustrated. And it is perhaps this that got SIT chairman MB Shah exercised enough to say tax evasion needs to be made a criminal offence instead of the civil one it is today. While that sounds a logical response to a serious problem of black money, some perspective is required. For one, with tax rates coming down, so has the proportion of black money. Two, the problem is not so much the taxman not having enough powers as it is the taxman not having sufficient bandwidth to go after tax evaders, and not using the tools at his command. Which is why, the Tax Administrative Reforms Commission (TARC) pointed out India has just 3.6 crore taxpayers against the 6 crore it should have given there are 17 crore PAN card-holders. Previous TARC reports have talked of the millions of datasets—purchase of airline tickets for foreign travel, credit card expenses of more than R2 lakh per annum, purchase of cars and gold, and so on—that are available to the taxman to find out just who should be paying taxes, and how much.
If, instead of using these tools, the taxman has the power to imprison alleged tax evaders, imagine what this would do to the tax environment which, in any case, has been vitiated with extremely high-handed behaviour by the taxman. Today, the taxman loses around 90% of all cases in the Supreme Court and around 80% of those fought in tax tribunals as well as various high courts—were these cases to be criminal ones, imagine the scope this opens up for corruption since a jail sentence would be the only option for those who didn’t fall in line. Indeed, serious thought needs to be paid to how the taxman is to be disciplined for filing frivolous cases. In both the Vodafone and Shell cases, the Bombay High Court has recently dismissed very high tax demands on the parent companies that were bringing in FDI—would making the case a criminal offence help or hinder justice? Or take the Hasan Ali Khan case, one that would probably also be bothering the SIT which is looking to capture black money help overseas by Indian citizens. After raising a tax demand of R1.16 lakh crore based on the tax raids that suggested he had $8 billion in various banks including the United Bank of Switzerland, the finance ministry is believed to be of the view the case may not stand up to legal scrutiny. Rather than simply wanting to equip the taxman with more powers, the emphasis has to shift to arming the taxman with more expertise and to start asking the taxman some tough questions, to explain what kind of preparation goes in to making tax demands where the failure rate is so high.