Most newspapers, including this one, have decried tax-terror over the years, and while cases like Vodafone and Cairn hit the headlines due to the previous government’s retrospective amendment, other instances of this have included arresting a senior official of travel portal MakeMyTrip without even issuing a show cause notice. Several high-pitched transfer pricing assessments also fall in this category, which is why, over the past few years, the taxman has signed 150 Advance Pricing Agreements to provide certainty in taxation principles – though details are not available, this probably involves significant watering down of the original tax demand.
That said, as the FY17 tax collections show, taxpayer terrorism is just as large, but rarely gets mentioned. Though the government has not given any data on collections under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) tax-amnesty scheme for those who deposited truckloads of currency after demonetisation, with most of the demonetised currency back in the banks, the government was banking on PMGKY tax collections to show November 8 was a success. On the face of things, personal income tax collections haven’t done well when you consider they rose just 18.4% against the targeted 22.7%. When you deduct the Rs 13,000 crore or so that came from the first tax amnesty scheme, the growth falls further. In absolute terms, collections rose by Rs 65,000 crore and around Rs 52,000 crore once you take out that got from the first amnesty. Given the normal growth seen in years of 7% GDP growth and the fact that advance tax collections were higher as demonetized money could be used for this, this suggests the PMGKY couldn’t be more than Rs 20,000 crore on the outside; news reports suggest the amount could be half that.
That tax evasion was rampant was obvious from the fact that while just 1.7 lakh people declared an income of more than Rs 50 lakh in FY16, the total that flew abroad for business or tourism was over two crore – economic research firm PRICE estimated that, in even 2014-15, there were at least 300,000 persons with an income of more than Rs 1 crore. When, after demonetisation, the government got reams of data to catch tax-evaders, most felt PMGKY collections would surge. Around 1.5 lakh bank accounts, for instance, saw an average of Rs 3.3 crore of cash being deposited in them – the taxman sent notices to 18 lakh persons who deposited Rs 4.2 lakh crore between them. Data was put out on how the taxman was cracking down on shell companies and ‘entry operators’ – if tax-evaders still haven’t come clean, it’s because they have faith their fake books will stand scrutiny.
More tax-terror, though, is not the answer since, above all, with the taxman in cahoots with evaders, this just increases his potential for bribes and little else. What is required is steady plugging of loopholes and removing exemptions which make tax-theft easier. GST implementation is a big step since there will be 24×7 information on income-generation points; linking Aadhaar with PAN cards, bank accounts and high-value transactions will ensure all details are captured to give the taxman a 360-degree picture. Moves like putting all taxman-taxpayer queries online are equally critical since it exposes the taxman’s actions to potential scrutiny using even data analytics. Since little evasion can take place without the taxman’s connivance – even if the number of corrupt taxmen is small – keeping constant watch on this is critical.