The government can do without making tax evasion a criminal offence as the existing income tax laws, which provide for rigorous imprisonment up to seven years for wilful default, has not been used effectively to unearth black money, say experts.
"One can be jailed for seven years (rigorous imprisonment) for wilful evasion of tax (above Rs 1 lakh). However, it is implementation of law that needs to be made effective. The Government has not used these provisions effectively", said Rahul Garg, Executive Director, Tax and Regulatory Services, PwC.
Expressing a similar opinion, Uday Ved, Head Tax, KPMG said, "in certain situations, it is still a criminal offence. There are provisions of imprisonment from three months to 7 years...In my career of 25 years, I haven't seen anyone going to jail for income tax lapses".
Facing flak from civil society for not doing enough to deal with the black money, the government has already set up Directorate of Income Tax (Criminal Investigation) and is looking at the possibility of making tax evasion a criminal offence if the source of income is illegal.
"If there is an element of illegality about the source of income or if funds are used for illegal purpose...We can think of classifying these as criminal tax offences", the Finance Ministry official had said.
Under section 276C of the Income Tax Act, 1961, persons wilfully attempting to evade taxes, penalty or interest can be punished with rigorous imprisonment ranging from three months to seven years with fine.
Ved pointed out that even a third party can be imprisoned for helping tax evasion.
"Draconian laws do not solve problems. Current laws have enough teeth. Just effective implementation is required", said N C Hegde, Partner Deloitte Haskins and Sells.
The investment environment, he said, has improved after the government replaced the Foreign Exchange Regulation Act (FERA) with a business-friendly Foreign Exchange Management Act (FEMA).
FEMA has done away with the unlimited powers to arrest businessmen on the basis of mere suspicion enjoyed by officials under FERA.
Making generalised provisions for arresting tax payers would put the clock backwards, Ved said, adding a tax payer should be treated as innocent unless proved guilty.
The stringent provisions and discretionary powers, said Sudhir Kapadia, Tax Market Leader, Ernst and Young, could be misused by the tax officials.
"If intent is to make any act criminal offence, then we must have checks and balances to prevent misuse... While there should be strong deterrents against tax evasion by way of interest and penalties, it is important to apply criminal proceedings very selectively", he added.
Another tax expert Kuldeep Kumar, Executive director, Direct Tax, PwC too opined that "giving discretionary powers to revenue officers will lead to harassment".
