Sucheta Dalal :Honest taxpayers and the FM's new targets
Sucheta Dalal

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Honest taxpayers and the FM's new targets  

Dec 6, 2004

A few years ago, another Finance Minister had decided that tax evaders were to be found among those who owned a car, a credit card, a telephone, a house, were members of clubs that charged an entry fee of Rs 25,000 or had travelled abroad (or funded someone’s foreign travel). It started out as the one-by-six scheme until the ludicrousness of including telephones in the checklist dawned on the government and became one-by-five.

A year later, the tax authorities happily declared that the scheme had doubled the number of income tax assesses to 2 crore. But we haven’t seen any analysis of the actual increase in tax collection from these new assesses after reducing increased administrative costs on tax collection and the number and value of refunds claimed by this group. In a country where just about 2 per cent of the population of over 1.13 billion pays tax it is imperative to increase the number of taxpayers, but when 80 per cent of the revenues come from just 20 per cent of the people, it is also important to correctly target big evaders in order to extract higher tax compliance.

Finance Minister P. Chidambaram has hit upon new ways to trap tax evaders. He has empowered tax enforcement officials to attach the assets of evaders. He has asked banks, mutual funds, companies issuing shares and debentures and credit cards as well as share registrars and the Reserve Bank of India to file Annual Information Returns (AIR) in seven specified situations. When a person has over Rs 10 lakh in a savings account, owns mutual fund units worth Rs 2 lakh or more, owns bonds/debentures worth Rs 5 lakh or more, equity shares worth Rs 1 lakh, transacts in property worth over Rs 30 lakh, owns Reserve Bank bonds worth Rs 5 lakhs plus or runs up credit card bills exceeding Rs 2 lakh.

The average honest tax payer, especially the non-salaried class would have ordinarily welcomed this effort to flush out chronic tax evaders, except that the rot in the regulatory and enforcement machinery is deep that these measures are viewed with extreme cynicism and even anger.

Each of these actions only allow government agencies to intrude a little more into the lives or ordinary citizens. Confidential information about their assets and spending habits will now filter through porous government departments from a variety of different sources.

The Securities and Exchange Board of India (Sebi) has developed its own Orwellian identification system under the acronym MAPIN (Central Database of Market Participants), for unknown purposes. MAPIN requires investors to be photographed, biometrically fingerprinted and tagged in order that the regulator can track their market actions and prevent scams. The same Sebi spectacularly loses cases filed against major scamsters on grounds of delayed or shoddy investigation, but wants us to believe that its MAPIN database will prevent scams.

In the first phase, stockbrokers, market intermediaries and their related persons required unique identification numbers (UINs). After a ridiculous drama where even infant children were tagged and numbered by some firms, the Delhi High Court stepped in and restricted the Unique Identification Numbers (UIN) to specified intermediaries, their employees and wives. But Sebi is pushing ahead with the second stage where individuals who invest over Rs 1 lakh in the capital market have to obtain a UIN. Ridiculously enough, individuals investing Rs 1 lakh or more in a mutual fund also need biometric identification; so do ‘specified’ foreign institutional investors, their sub-accounts and foreign venture capital funds. After March 31 2005, Sebi has said brokers and other intermediaries are barred from dealing with individuals who don’t have an UIN number.

One of the FM’s key advisors was recently surprised when told about the MAPIN. ‘‘Isn’t this an invasion of individual privacy?’’ he asked. Very soon now, his association with an Asset Management Company makes it mandatory for him to be tagged too. Given Sebi’s inability to successfully punish even the gross violators of market rules, MAPIN is just an intrusion into individual lives that will drive investors away from the legitimate trading systems. So huge is the distrust of government’s tax and enforcement departments, that everybody who can successfully avoid them does it. After all, there is no privilege in being an honest taxpayer; it only increases your chances of harassment. Also, it is a common perception that taxpayers’ money only goes to pay salaries to the same officials who harass people. If the Finance Minister wants his tax-recovery attempts to be taken seriously, he must ask the IT department to scrutinise affidavits filed by politicians during the recent elections. Most of us would like to know how each of them has become a ‘crorepati’ so quickly and what is their record of taxes paid in building this wealth. That would be a bigger haul with less effort than trying to go after lakhs of bank and credit card transactions and are in all probability fully accounted for.

Also, how about investigating the wedding of an industrialist’s sons that is rumoured to have cost upwards of an obscene Rs 200 crore? When the richest or most powerful people in India attend a wedding, it clearly escapes investigation. What about the recent political weddings, which required the construction of several helipads to ferry rich guests to the venue be investigated? Or how about doing something about Ketan Parekh, who owes over Rs 1,000 crore to two banks but has been under no pressure to pay up. This cynicism about the government’s actions and intentions is not excessive. Honest IAS and IPS officials are leaving government service by the dozens, because they are humiliated and denied promotions or good postings. Last week, there was an outpouring of agitation among activists (networked through yahoogroups) when Y.P. Singh, an upright IPS official from Mumbai applied for voluntary retirement. Singh had several high-profile investigations to his credit and excelled even in his punishment postings (for instance as Commandant with the Reserve Police in Mumbai). But unending harassment finally ended his desire to fight. Singh has watched the tax machinery closely. In fact, his forthcoming novel titled ‘Vultures In Love’ is an account of two corrupt Income Tax officials. He told this newspaper, ‘‘Even if I can turn one corrupt income tax officer into an honest one, it saves the country at least Rs 1,000 crore.’’ Is the FM open to this reality? It so, his efforts need to be directed elsewhere.

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-- Sucheta Dalal