T N Pandey: Another immature plan to curb black money

TAXING MATTERS

Newspapers of December 3, 2004 were replete with the news that the government has formulated a scheme to call for information in exercise of power conferred under Section 285BA of the Income Tax Act, 1961, in regard to seven specified categories of investments.

Such information would enable the income tax department to tap black money.

Information returns (designated as annual information returns (AIRs)) in the prescribed format are to be filed annually by the third parties (see table) before August 31, of the following financial year.

The information so received will be fed into the national tax information network (TIN). The proposal, prima facie, may be appealing.

It may indicate that the government is taking steps to make compliance to the national common minimum programme, which mandates it to formulate special scheme to unearth black money and assets.

But the scheme pronounced is, prima-facie, immature. It is unfortunate that it has been formulated by a department, which has been dealing with tax-evaders and trying to tax unaccounted money since many decades.

It is a matter of common understanding that tax-evaders do not invest black money through such avenues. Further, for those investments, permanent account number (PAN) is to be mentioned. Hence, a PAN holder will never think of putting in black money in these areas of investment.

Moreover, taxpayers are smart guys. If such investments are to be made, these would be made below the limits prescribed. For example, if Rs 2 lakh or more are to be invested in mutual funds, the amount will be broken in several segments and investment below Rs 2 lakh will be made in different funds instead of one. Such cases will not come in the list.

Thus, the much-publicized scheme will pour in thousands of AIRs in the income tax department but is not likely to disclose black income, and generate revenue for the government.

It is unfortunate that the government is not getting wiser by past experiences. Already considerable paper work is mounting by "one-by-six" scheme without yielding any tax for the government. Till today, the tax department has not published any yearly figures or data regarding the operation of "one-by-six" scheme to show:-

The number of new assess detected because of the scheme;

Past cases re-opened;

The amount of revenue collected by way of tax, interest and penalty; and

The number of returns received, showing income below the taxable limits and their percentage to the total number of returns received.

The fact that this scheme has merely resulted in thousands of returns, being filed without paying any tax, is clear from paragraph 96 of Finance Minister P Chidambaram's Budget speech for 2004-05, where he said: "Out of nearly 34 million persons filing income tax returns, only 27 million assessees are taxpayers"

Thus, 7 million returns are already with the government, which generate no revenue but make the government spend money on stationery and storing of such returns.

Is it worthwhile? Not only these 7 million returns, the rebate announced vide Section 88D by the finance minister during last year's Budget to give relief to the taxpayers by way of no tax with income up to Rs 111,250 but make such taxpayers to file returns, would add nearly 14 million more returns each year to the records of the department from where no revenue would be collectible.

Thus, out of 34 million taxpayers mentioned by the finance minister, 21 million would be in-fructuous returns with no tax collections.

Why the tax department is not happy with so much existing paperwork without any return in terms of tax and wishes to add more tonnes of papers in the form of AIRs by enacting Section 285BA, and making the initial announcement in regard to seven areas to start with is really baffling.

The parallel economy in the country is substantially large. According to the CVC's estimate, it was 40 per cent of the economy in 2000. Efforts should be directed to tap it and bring it in mainstream""not make the manpower of the department getting down to tackle in-fructuous paperwork with lot of costs also being incurred in the process.

In the direction for checking black money to carry out national common minimum programme's mandate in its spirit"" not merely cosmetically, considerable imagination, practical approach, commitment, concerted efforts are necessary.

Of the cuff approaches of prescribing items to be included in the AIRs in a piecemeal manner cannot solve black money problem. These would only add more papers to the stocks of the department without achieving anything.