For India to move from tax terrorism to tax transparency, the government needs to look at taxation and punitive actions from a business lens
By Vijay Kumar Gupta
The idea of the Ram Rajya is considered to be a blend of welfare and opulence. On digging deeper, one would realise how much underappreciated its taxation process was in terms of being a key to empower the state to serve its citizens. The era’s tax collection methodology is often compared to the Sun’s way of collecting water from different water sources through evaporation—only to give it back in equal proportions to different parts of the earth. In other words, when it comes to taxation, what matters is ‘how’ the tax gets collected.
Governments normally work on the ‘truth-default’ theory. This is a success only till both the stakeholders hold their side of bargain and honesty. Punitive actions and other penalties are enforced by governments when the actions of the dishonest or otherwise the holy fools in the society force governments to do so. One cannot overlook the fact that while there are pain-points that come with taxation structures (including fear of punitive actions), there are more than enough examples highlighting the rampant tax evasions that happen. From income-tax evasion to GST evasion through the import route, the list is endless. The GST came into being to nullify VAT evasion through both import and CST routes. Governments have to perpetually keep an eye on the loopholes and come up with ways and means to plug and punish.
However, when a government is laying down the tax structure and deciding punitive actions for what it may feel is evasion, it is important that a holistic business view is taken into consideration by the authorities. Many a times, the policymakers are not adept at practical implications of what they decide. This inevitably leads to harassment of honest taxpayers, a result of the poorly-framed policies and processes by ill-informed policymakers.
For instance, TDS deduction is duty of the organisation that is making payments to invoices raised by service/goods providers. The payee gets paid post TDS deductions, thus should not then be penalised or harassed by the authorities when the deducting organisation does not deposit the same or delays it. Why should the payee even be served a notice? TDS is ‘tax deducted at source’ and thus lays full ownership on the payer and not the payee.
Even new laws like the Insolvency and Bankruptcy Code do not have provisions to prevent such harassments. Soft targets like employees, the common person and other payees also have been harassed and sent notices to pay up the tax twice over. How many from among the common person has the knowledge or the bandwidth to fight these cases? They thus end up paying twice to avoid harassment or are forced to dent their credibility. The IBC has been completely silent on the Provident Funds that the defaulting organisations have not deposited. Aggrieved employees are thus handed a triple-whammy having lost both PF and TDS and forced to pay income tax again. What is the purpose of tax being deducted at source if the payee still has to undergo harassment?
The above have been compounded with the enforcement of faceless appeals and assessment. Those who receive notices feel that not all the aspects of assessment can be explained through e-submission of documentation. While it is good and faster to go digital, the government should also have a provision wherein if a defendant so wants, should be allowed an in-person hearing or a system that does not harass the honest taxpayer, which clearly does not seem to exist today.
The above is true even for GST filling. Not only is GST filling way too complicated and has reduced the CA community largely to documentation experts, why does an honest individual or a fully-compliant organisation have to be penalised if the payee here does not deposit it with the government. The government is blindly quick to harass the taxpayer once again, despite the Narendra Modi government engaging in heavy-duty PR on supporting the honest taxpayer.
A point in case is the issue faced by Swiggy and Instakart where both the firms and their employees have been converted into soft targets and thus troubled by authorities without understanding the business angle that these companies would never risk their market value for meagre amounts that could be save through tax evasions. If the Modi government is serious about inviting FDI and ensuring India climbs up the ranking of Ease of Doing Business, it shall have to ensure its policymakers pin the main culprit and not subject the corporates to such tax terrorism. The political will must ensure that the unorganised sector, which probably has more serious cases of tax evasions, is brought to justice. Giving the common person tax exemption on certain amount of monthly purchases if they submit authentic GST invoices could be a suggestion to begin this revolution.
If the issues faced by the companies weren’t enough, they were brutally stomped upon by the pandemic and its ongoing aftermath. What does not help the business is the insensitivity of the government towards the cause of businesses beyond lip service. One wonders why the government fails to understand the cash flow impact that the filing of GSTR-1 has on businesses. Cash flow or working capital limitations force organisations into taking more debts, which unnecessarily burdens the system.
The government is quick to define punitive actions if the GST or other taxes are not paid on time or there is an error in paying loans or even if documentation has an error, but is quiet on defining a law that ensures payments are done on time to businesses and GSTR-1 filling process is corrected to ensure burden of cash flows is reduced on businesses. A business-like approach to ease out the process can help businesses better utilise the loans for expansion, thus creating new jobs as against for sustenance, which is largely the case today.
Similar tax terrorism, if it may be put thus, was experienced by Vodafone when the then government decided to retrospectively tax the corporate. Whether the corporate won or not, is not the point. It just sends out the wrong message. Especially in a post-Covid-19 environment, where businesses are any way under stress, it is prudent for the government to take a business-centric practical approach to tax and punitive action issues.
The Modi government needs to move beyond lip service on the aspect of rewarding the honest taxpayer. If there are serious penalties for evasions, there at least needs to be an honest and practical system to ensure that the employees, individuals and organisations are not penalised for being true to the cause off the nation, nor should they carry a message that they are being targeted for being honest. The government really needs to look at taxation and punitive actions from a business lens, if India needs to move from tax terrorism to tax transparency, as the current government claims. Having said that, the onus also lies on the citizens and corporates to look beyond the tax evasion mindset and ensure that the nation and thus they themselves benefit in return.
The author, a CA, is former central council member of the ICAI