Another tax window
After administering the bitter medicine of demonetization, the rendra Modi government apparently believes it has driven home the message to the populace about the benefits of coming clean on income and paying taxes. When the Prime Minister made his shock November 8 announcement that Rs 500 and Rs 1000 notes have been rendered worthless pieces of paper, the impression was created that there will be no more leniency to people still clutching on to their uccounted, if not black, wealth. Holders of such money were made to rue their folly of not availing of the 4-month window from June 1 to September 30 this year under Income Disclosure Scheme (IDS), when they could have disclosed their uccounted wealth by paying 45 percent tax. After the demonetization move, dire warnings were issued that black money deposited in banks during the 50-day period till December 30 will be subject to stiff tax, interest and 200 percent pelty, besides the launching of crimil prosecution. However, the government is now providing yet another window to those who declare their income; it proposes to amend the tax laws to levy a total tax, pelty and surcharge totaling 50 percent on the amount deposited after demonetization. Of this money, 25 percent or one-fourth will be locked in for four years without interest to fund an anti-poverty scheme, mely the Pradhan Mantri Garib Kalyan Yoja, 2016 (PMGKY). Along with this carrot comes the stick — a proposal to levy higher taxes and stiffer pelty up to 85 percent for those who still refuse to disclose illicit wealth but are caught. After the expected passage of the Taxation Laws (Second Amendment) Bill, 2016 in Lok Sabha, it remains to be seen how the Opposition responds to it in Rajya Sabha, given the total stand-off in Parliament over the currency flushout issue.
There are legitimate grounds to believe that the Central government’s demonetization move was made with the intention ‘to shock and awe’. But considering how some opposition parties are making political capital out of the inconvenience to the public, it now makes sense for the government not to allow needless escalation. The threat of unleashing a tax inspector raj should not be made lightly, given the manpower crunch long facing the Income Tax department. When this department struggles to verify even those income declarations made in any single fincial year, it will surely be a near impossible task for tax officers now to prove that myriads of depositors misreported their incomes last year. Experts have pointed out that even with a proper format in place and pro-active banks to report suspicious deposits and transactions, the taxmen will have a hard time in keeping tabs on a population of 130 crore. Over Rs 6 lakh crore have already been deposited in banks; even hitherto zero balance Jan Dhan accounts have registered deposits totaling Rs 64,250 crore by last week. Earlier, taxmen have been mostly going for random verification of Permanent Account Numbers (PAN) to detect tax evaders; now, they will have to catch some big fish and make highly-publicized examples out of them. It is not for nothing that India has given the word ‘jugaad’ to the world; demonetization has provided the latest opportunity for crores of Indians to showcase this tive ingenuity. Those with uccounted money are parceling it out piecemeal into multiple Jan Dhan accounts, loaning money to relatives and friends to be repaid later after the demonetization dust settles, hiring people to stand in queues to exchange their old notes (presently blocked), paying advance salaries for several months to employees, buying up gold and high value products on backdated invoices, and doting to political parties immune to RTI queries. The I-T department may issue thousands of notices to individuals and firms in the coming days, seeking information about large deposits of banned Rs 500 and Rs 1000 notes. But information gathering and investigation is one thing, while assessment to prove tax evasion is another. The Centre’s newest window for tax evaders to come clean once more is therefore a reasoble move to avoid needless grief on all sides.