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