The author is aghast that the Government is contemplating yet another scheme to offer amnesty to tax evaders. The author calls such schemes a “fraud on the honest tax payer and the nation” and reminds the Government of its solemn promise made to the Court that it would not introduce any more amnesty schemes. Amnesty schemes should not be used as a measure to raise revenue says the author and offers a number of practical suggestions to help the Government deal with the menace of tax evasion and increase revenue. Amnesty schemes will not curb tax evasion but will encourage it is the chilling warning given by the author
Recent newspaper reports suggest that the Government has constituted a committee to study the channel to bring back the black money lying in various banks abroad. The Federation supports all efforts to eradicate black money, however, the Federation is strongly against an Amnesty Scheme for achieving this objective, as any such scheme would really constitute a premium for dishonesty.
We may draw your kind attention to the fact that, before the Hon’ble Supreme Court, a statement was made by the then Attorney General, that the Government will not introduce schemes that will affect the morale of the honest tax payers
When the Voluntary Disclosure Scheme, 1997 was announced, the Federation strongly objected to the same and represented to the Government to drop the proposal. However, the scheme was implemented. The Federation challenged the Scheme before the Bombay High Court (1997) 228 ITR 63 and by way of further appeal to the Hon’ble Supreme Court (1998) 231 ITR 24. We may draw your kind attention to the fact that, before the Hon’ble Supreme Court, a statement was made by the then Attorney General, that the Government will not introduce schemes that will affect the morale of the honest tax payers.
We state that though more than 14 disclosure schemes have been introduced, statistics given below clearly indicate that the response has not been at all encouraging and the parallel economy continues to thrive.
1) Demonetization of High Denomination currency notes in 1946 and 1978
Out of estimated stock of Rs. 144 crores in circulation in 1946, notes to the tune that only Rs. 9 crores were presented for conversion (6.25%) and the corresponding figures for the 1978 scheme were Rs. 165 crores in circulation and Rs. 20 crores converted (5.45%).
2) Voluntary Disclosure Scheme, 1951(Tyagi Scheme).
Amount disclosed Rs. 70 crores and tax gathered of Rs. 11 crores only (15.7%).
3) Voluntary Disclosure Scheme ,1965.
Section 68 of the Finance Act, 1965, popularly known as ’60 : 40 scheme’. Two thousand persons made disclosure amounting to Rs. 52.18 crores and paid tax of Rs. 30.80 crores only.
4) Voluntary Disclosure Scheme – II
Section 24 of Finance (No.2) Act, 1965, 1,14,226 persons made declarations offering income of Rs. 145 crores and paid tax of Rs. 19.45 crores.
5) National Defence Gold Bonds, 1980, issued in 1965.
6) Voluntary Disclosure Scheme, 1975
Income declared Rs. 744 crores and wealth declared Rs. 834 crores. Income Tax paid Rs. 241 crores and Wealth Tax paid Rs. 7.70 crores.
7) The 1981 Special Bearer Bonds, Immunities and Exemption Ordinance Act
The scheme provided for issue of 10 year bonds of the face value of Rs. 1,000 each and on maturity the holders will receive Rs. 12,000/-for each bond. The sales were not encouraging.
8) Amnesty Scheme, 1985
This covered both Income Tax and Wealth Tax and the amount mobilized was a paltry sum of Rs. 700 crores over a period of one year.
9) FERA Amnesty Scheme, 1986.
10) Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemption) Act, 1991.
11) The 1991 Schemes – Voluntary Deposit Schemes.
In 1991, Dr. Manmohan Singh then as Finance Minster, came up with a number of schemes for mopping up black money. The National Housing Bank Deposit, the Foreign Exchange Remittance Schemes, the India Development Bonds in US Dollars and the Gold Bond Scheme were all brought in. The National Housing Bank Deposit Scheme failed miserably. The India Development Bond and Foreign Exchange Remittance Schemes were in reality firefighting operations undertaken because of the precarious foreign exchange reserve position in 1991. Partial convertibility of the rupee was introduced in the hope that it will reduce the under/over invoicing racket by bringing down the differential between the official and unofficial rates of exchange.
12) Gold Bonds (Immunities and Exemption) Scheme, 1993.
13) Voluntary Disclosure Scheme 1997 (VDIS, 1997).
14) Kar Vivad Samadhan Scheme 1998.
Our first objection to the any Amnesty Scheme is that it is a fraud on the honest tax payer and the nation as well. The message sent out by repeated voluntary Disclosure Schemes is that only the honest tax payer pays taxes regularly, whereas the wise pays his taxes only from VDS to VDS
Our first objection to the any Amnesty Scheme is that it is a fraud on the honest tax payer and the nation as well. The message sent out by repeated voluntary Disclosure Schemes is that only the honest tax payer pays taxes regularly, whereas the wise pays his taxes only from VDS to VDS.
Instead of repeatedly bringing in disclosure schemes, we suggest the following for Government’s consideration.
1. Honest tax payers who are filing the returns regularly should not be harassed. 98 % returns may be accepted and only 2% returns may be scrutinized through selection based on a scientific method and transparency. While administering the tax law the officers must encourage the culture of tax service rather the culture of tax collection.
2. Tax evaders must be dealt with strictly. The process of Survey and Search must be intensified and all tax evaders who have not been filing returns must be brought under the tax net. When a person is subjected to search, the Government should not involve the person or industry in a public function till they get clearance from tax administration. Even the social and political organizations should not call such persons as chief guests and the tax evaders should not be honoured by the Government or any political or social organizations. If any person is honoured with Padama Bhusan or Padamshree or any national or State honour, if later on he turns out to be tax evader, the Government must recall the honour given to him.
3. The lowering of the tax rates, efficient tax administration and granting refund with in prescribed time limit will encourage the voluntary compliance. In Singapore the personal taxation is ranging from 3.5% to 20% and corporate tax is at 17%. If tax rate is reduced, there will not be any incentive to use the route of tax heaven.
4. Increase of tax payer by voluntary tax compliance
Compulsory quoting of PAN on air ticket for local & package foreign tour. The sale of immovable properties where value exceeds Rs. 10 lakhs & above, where person spends electricity & telephone expenses Rs. 25,000/- etc. and encourage transactions through banks in all payments and receipts above Rs. 10,000/-, even in relation to agricultural transactions, this will increase the tax base.
5. Encouragement to honest Officials and strict action against corrupt officials.
When a Government officer is caught for corrupt practice, lot of publicity is given; what is the final outcome of the action is not made available to the Public. In each year, the CBDT should publish such information in their website. Hon’ble Justice R. C. Lahoti, Former Chief Justice of India, while addressing at National Tax Conference at Indore on Saturday, 7th September, 2002 at Page No. 7 stated as under:-
“Corruption is a cancer eating into the roots of the society. It is difficult to fight against corruption because the chances of success are bleak but this is no reason for despondency. Nobody is born corrupt; it is the vitiated atmosphere in the society and the system of governance which converts the clean into corrupt. An honest person resists corruption but allurements and temptations at times prevail upon him and once corrupt, even an honest person prefers and finds it convenient to stay corrupt. The seeds of corruption are sown in the mind of the man and the cure, if any, lies in eradicating the seeds of corruption from his mind. An honest revenue officials says “The honest are hounded; they are humiliated; they are ignored; they are manipulated: they are used, they are punished; they become the laughing stock in society and in their families; even their very honesty is suspected. In spite of that, there are many honest officers in the department who remain honest against all adversities. They are a special species; they have to be preserved and protected”.
On the Role of Tax Professionals and Bar Associations, the Hon’ble Justice stated as under:-
“Laws alone cannot prevent the commission of a crime. Nor can a tax-payer who is placed like a lamb before a corrupt official who is like a wolf, fight against corruption. It is a combined, united and forceful effort of the tax practitioner that can do a lot for preventing corruption.”
The members of the Federation whole heartedly endorse the views of Hon’ble Justice and makes an appeal to Tax Professionals to make an honest and sincere attempt in shaping the destiny of the nation.
6. Research in Taxation – Palkhivala Memorial Research Academy.
We have made an appeal to Government to establish “Palkhivala Memorial Research Academy” as a mark of national tribute to him. We find there is no research in the tax law and administration. In other developing countries, there is continuous research activities wherein Judiciary, academicians, tax professionals, tax administration jointly working where as in our country we have not developed such concept. We, therefore, suggest that by having continuous Research we can bring more assessees under tax net, litigation can be reduced and generation of black money can be reduced.
Readers may send their view for better tax law, better tax administration and measures to reduce the generation of black money.
Dr. K. Shivaram
Editor in Chief, AIFTP & President, ITAT Bar Association
Reproduced with permission from the AIFTP Journal, February 2011
Shri Shivram has been a prolific writer relating to such issues and has been very active in highlighting the same at different forums. Many thanks.
What we need is whole hearted, Strong WILLED approach to the issue of corruption. It is unfortunate that the stooges of the governments have the courage to openly advocate that the movement against corruption is supported by RSS etc and there fore it is strongly advocated that such movement is worthless. It is more unfortunate that our enlightened educated people never utter a word that support of some one or otherwise does not have any bearing on the substance of the movement.
In fact there must be extremely active movement well crafted to deliver the final result in the form of prohibition against the corrupt in the soceity.
Article spells out true grievance of honest taxpayers that they are not valued by the Government for their honesty. In order to expect “Honesty’ from taxpayers what measures are taken by Government since independence to prove reciprocate “Honesty” from Government?? On the contrary, scam like 2G etc. are of such volume that if such amount of public money was not siphoned, the burden on taxpayer would have been much lighter. Can Government assure that tax honestly paid by taxpayers will be truly utilised for the purpose it is meant?
In order to protect true taxpayers and avoid unwarranted litigation, a provision in the Act can be made to the effect that if any addition is made to the income of the assessee is ultimately not sustained by higher authority, the Goverment shall pay to the tax payer some token like 25% of the tax demand made pursuant to such addition as compensation and the Government will have option to recover such compensation paid from the Assessing Officer (AO). Commensurate to liability faced by the AO, if the addition is sustained in final appeal, Government will pay 25% of tax demand collected as reward to the AO – which will be TAXFREE. Thus, bogus claims, wrongful additions, etc. will be reduced substantially. To maintain transperancy such info should be made available on web. Further, provision to decide appeal within given time frame should be made so that appeals are kept pending for years in courts. This is possible by having fast track disposal for direct taxes by constituting special courts.
I agree with the author that such amnesty schemes seriously undermine the sanctity of the honest tax payers. A few such suggestions to combat the cancer of corruption is :
1). Optimum use of RTI to obtain copies of orders framed by the AO and the CIT(A) so that the AO/CIT(A) is always under the fear of being investigated for dereliction of duty and he will thus exercise due diligence in perfomance of his duty with principles of equity and fairness. RTI will help detect any prima facie cases of extreme bias or double standards, favouring one assessee ( who has presumably greased the palms ) and the other who presumably not. However on the contrary the DTC seems to stiffle this proposition in Sec.142 of DTC which says ” No information about any assessee shall be provided to anyone unless it is authorized by the Board or person specified by the Board. Information may be given to Govt agencies under FEMA or such other law. More importantly any CIT or CCIT may furnish information of any assessee to anyone if the CIT/CCIT an application is made to the CC/CIT who is satisfied that it is in public interest to do so. Against this decision of the CIT/CC a writ is the only remedy “.
2). If possible make the proceedings before the CIT(A), public proceedings like the ITAT.
3). As per the suggestions by the author and many committees like the Dr. Raja Chellia (Tax Reform Committee) in his committee report (1992) 197 ITR 257 (St.) para. 5.9 who suggested “Ways must be found to hold the officer accountable for the kinds of assessments he makes. Under the present procedure an Assessing officer, whether he be a Superintendent of Central Excise or an Income Tax Officer, can over-assess, raise additional demands without sufficient grounds and yet remain unconcerned and unaffected if his overassessments and additional demands or orders confirming demands raised by him are dismissed as untenable by the Tribunal.” Hence hold the concerned AO ( in person ) responsible for his order till atleast the ITAT stage.
4). Publish on the Govt website the assets of the AO’s.
5). Make all scrutinies electronic and document based. Unless and until absolutely neccesary no personal interaction.
May be these sound strange or a bit misplaced now, but will, if not eliminate, atleast cut down on corruption.
I appreciate the righteous anger of the author. At the sametime I feel that the author has not appreciated the fact that corruption is so rampant, political and administrative interference is suffocating the few honest officials, that it is difficult to reign in the evasion of tax. Can anyone clean the dirt with a dirty linen? The only way is to plead with the evaders to stop evasion, bring in the evaded income for taxation etc. The disclosure scheme are nothing but the acceptance of the inefficient administration.
The next issue is the standard by which one has to judge who is honest. No business man can do business in India without greasing the palms of the government officials. This needs black money and this is generated by understating sales, inflating purchases and expenses. There is another method and that is to transact the business outside the books and only in cash. Most of the scrutiny assessments are nothing but make believe that they have thoroughly scrutinised the accounts by making some additions and disallowances which are normally kncoked off in appeals.
This is a very good thought but the implementation seems to be difficult becuase of nexus of decision makers and the law breakers.