T N Pandey: No short-cuts for curbing tax evasion

TAXING MATTERS

A report in Business Standard on June 3 reads: "Chidambaram gets tough on tax evasion"

One step under contemplation concerning direct taxes seems to be stepping up of search operations, which, according to the report, were relaxed during Finance Minister Jaswant Singh's tenure. But this measure alone cannot improve tax compliance and check evasion.

Search operations are one of the means for checking tax evasion. Great care is required in carrying out searches as these are serious intrusions in the privacy of citizens.

Though the provisions have been held constitutionally valid by the Supreme Court, the fact remains that these provisions are to be applied cautiously with utmost care and caution""not indiscriminately as a crusade.

Mere reliance on search provisions cannot stop black money generation. Searches are evidently directed against persons, who are believed, on good grounds, to have evaded payment of tax on their income and property.

Thus, the provisions can be used against those, who have been evaders of tax in the past. These can be effective in checking tax evasion generally, if the government's policy concerning these is well conceived, creates deterrence and there is consistency in approach.

Changing policies and creating hopes that sins of evasion would be condoned by amnesties and voluntary disclosure schemes announced from time-to-time take away the deterrent effect of search provisions.

The United Progressive Alliance's common minimum programme indicates that the government is contemplating formulation of a special scheme to tackle black money.

Obviously, the scheme is going to give "carrots" to the evaders - not sticks - as the Income Tax Act, 1961 contains enough sticks, which, if used effectively will considerably check the black money generation. But it has not been so.

The Bombay High Court in the All-India Federation of Tax Practitioners case, when the vires of Voluntary Disclosure of Income Scheme, 1997 was challenged, said despite stringent taxation laws, it was not possible to unearth unaccounted money.

The assessment completed after the search operations has been found deficient in many ways. Thus the efforts put in planning and executing searches become infructuous.

The Comptroller and Auditor-General in its reports on direct taxes for the year ended March 31, 1999 (Report No. 12 of 2000) has highlighted the deficiencies in the assessments in search cases. Some of these are:

The details and amounts of undisclosed income indicated by the investigation officer in the appraisal report were not sustained during the assessment proceedings.

In most cases, reasons for non-inclusion of the amou-nts mentioned in the appraisal reports were found to have not been recorded while making the assessments despite departmental instructions.

Delayed completion of assessments and non-completion of block assessment in the stipulated period cause a loss Rs 272.21 lakh revenue.

Mistakes in computation of income and tax caused short levy of Rs 2,909.82 lakh tax.

Non-levy/short levy/excess levy of surcharge caused undercharge and overcharge of Rs 3,996.04 lakh and Rs 19.90 lakh taxes, respectively.

Unintended benefit given to assessee and incorrect computation of undisclosed income under Section 158BB (1)(c) caused short levy of Rs 1,944.84 lakh tax.

Incorrect allowance of Chapter VIA deductions caus-ed short levy of Rs 753.42 lakh.

Provisions of Section 158BD were not invoked, which had a revenue impact of Rs 398.21 lakh.

Interest and penalties to the extent of Rs 2,254.71 lakh were not levied.

Ineffective search and defective assessments revealed loss of Rs 334.73 lakh revenue.

Capital gains, wealth tax and gift tax escaped assessment with consequential non-levy of Rs 236.94 lakh tax.

Merely search provisions will not check tax evasion. Proper attention is needed in planning of searches and in framing assessments.

Other steps, that need to be thought of seriously if the government is anxious to check tax evasions, are:

Currently, a debate is on in Parliament and outside about non-inclusion of persons in the Cabinet, who have a criminal past. This idea needs to be extended to the cases of tax evaders also. Firstly, tax defaults should not be considered merely as civil defaults.

Tax evaders do considerable disservice to the community and therefore, tax evasion should be regarded as crime against the society and hence, persons, resorting to it should be barred from holding elective offices or for being appointed as directors in companies or for appointment to any other public offices like consultants in the government or law officers of the Union government or for holding similar other posts.

Provisions concerning surveys to detect new assessees should be widened.

Tax consciousness should be inculcated among young by prescribing direct taxes as one of the subjects for study in schools and colleges.

There should be transparency in the spending of public revenues so that the taxpayers may know that the money, that is being contributed as tax, is well spent for the welfare of the people.

There cannot be short-cuts for checking tax evasion. It has to be a long-term plan implemented faithfully.