Sucheta Dalal :Time to ask and answer a few questions
Sucheta Dalal

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Time to ask, and answer, a few questions  

Jun 12, 2006

Amar Singh’s decision to question the spending habits of the Congress leadership is causing much amusement among ordinary tax paying Indians. The timing is perfect. It happened when most of us were furious about the new Saral form and when the Finance Minister refuses to eliminate subjectivity over long-term and short-term capital gains concessions even though people were clearly misled by his statements about the Securities Transaction Tax (STT).


Amar Singh has opened Pandora’s Box and it is now fair game to ask all the questions that we didn’t dare to or were never answered. The new Saral form wanted cash-flow statements and expenditure details from salaried people; can we expect the same from politicians? When Amar Singh goes to court, will his affidavit provide a full disclosure of his burgeoning business empire that finances a lavish lifestyle and affords frequent flying in private aircraft? Will he include cash-flow statements and expenditure in these disclosures?


After all, one can’t ask questions without being open to scrutiny.


Interestingly, the Income tax department demands a lot of disclosures, but also guarantees absolute secrecy about tax payments—unless leaked by tax officials. This is not empty conjecture. Recently, the Income Tax Commissioner of Mumbai turned down the demand of an antique dealer for details of movie producer Sanjay Leela Bhansali’s tax returns, even though she was only trying to equip herself to recover legitimate money owed by him.


Now look at this ruling in another context. What it means is that we the public will be provided every revolting detail about the exact content of alcohol and narcotics in the urine and vomit of Rahul Mahajan and his late father’s late secretary, but we cannot demand tax details which are apparently more secret. In fact, doctors are expected to keep medical reports private, while it is important for people to know details of the growing wealth of their elected representatives.


Yet, the contents of the viscera of a dead political aide are freely broadcast on national television but not the wealth amassed by them. Will Amar Singh take the lead in demanding transparency by asking that the tax returns of all Members of Parliament (PM) be posted on the Parliament website along with details of investments and expenditure? Will he disclose his own tax returns so that voters are always able to compare his lifestyle with his finances?


The Rahul Mahajan case opens itself up to other pertinent questions that fall into the ambit of cash-flow and expenditure details. For instance, does the government pay for the installation of jacuzzis at the official residence of MPs? Are these paid out of tax payers’ money? If not who pays for such luxuries in official accommodation that is not guaranteed beyond a five-year term?


The same question applies to security. On the one hand, the government provides prime real estate worth crore of rupees to persons who face a high security threat. On the other hand, we are given to understand that three persons who claim they had never met Rahul Mahajan or Vivek Moitra walk into a champagne and cocaine party in a high security precinct. If the Ministers and their kin are so lax about their personal security (in this case, it led to one death and one arrest) shouldn’t we citizens demand a reassessment of security cover and its cost to the nation?


Even in the past there have been reports about other Ministerial bungalows or their outhouses being used for nefarious activities; these investigations are invariably buried after the initial burst of publicity. Most of my questions are only in line with what the new Saral form had demanded.


But that is not enough. A nasty fallout of the three-year stock market bull run and the increase in corporate salaries is that the Finance Ministry suddenly wants to treat all salaried persons like taxevaders. In the last three years, tax officials have been given more leeway to make subjective decisions about tax liability applicable to individuals (capital gains) and companies (Fringe Benefit Tax); at the same time there is no attempt to make officials more accountable.


Keeping Income tax returns a secret ensures that people cannot compare two or more individuals with similar incomes and find out if they have received different tax treatment, depending on their relationship with assessing officers. Last week the Mumbai High Court warned the Income Tax department about the persistent failure of its lawyers to show up for hearings.


The big backlog of pending appeals are themselves a good reason to eliminate subjectivity from tax assessment, but we are headed in the opposite direction in the past few years.


Another sore point is the growing incidence of Service Tax which is reportedly planned to be hiked to 20%. When the economy is growing at 8.4% and salaries are increasing at 21%, why is the government constantly looking to squeeze out a larger proportion of people’s income through higher taxes? Services tax may be a good way of forcing tax evaders to pay tax on their telephone and electricity bills or insurance payments, but it casts an unfair burden on honest tax payers.


In any case, why is the government focussed on collecting more tax from tax-payers instead of going after tax evaders? Last year, a businessman told me, ‘‘There is no self-respecting member of my community in India who does not have a Mauritius account that allows him to invest through Participatory Notes (PNs) in the domestic stock market’’. Participatory Notes are financial paper issued abroad by foreign brokerage firms. They represent a pool of investment in the Indian stock market by routing funds through sub-accounts of Foreign Institutional Investors (FIIs).


The government is not only reluctant to disallow investment through PNs, but such investment has ballooned to 52% of total FII investment at the end of March 2006. Clearly, it’s time the government answered a few questions.



-- Sucheta Dalal