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Peeling the shell PDF Print E-mail
Tuesday, 04 July 2017 04:58
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Shobhana edit 

Action on shell companies long overdue, will boost taxes

 

With the Pradhan Mantri Garib Kalyan Yojana (PMGKY) turning out to be a damp squib and demonetisation not yielding the kind of results anticipated—most of the money seems to be back in the banks—the government’s attempts to unearth black money, it would appear, have been less than fruitful. While PMGKY resulted in just Rs 5,000 crore of income being disclosed, the Income Disclosure Scheme yielded just Rs 65,250 crore of taxes. However, going by the prime minister’s announcement on Saturday that 37,000 shell companies have been uncovered, the tax authorities appear to have mined the data received post-demonetisation rather well. Should the authorities be able to track down the offenders and recover the tax evaded, it would be a very creditable achievement. In fact, the PM spoke of over 3 lakh companies where the tax officials suspected the dealings had not been above board. Here again, the department must now prove it can nail down the offenders and recover the unpaid tax.

 

In May, the finance ministry had said the preliminary assessments under Operation Clean Money had revealed there were 18 lakh persons whose cash transactions did not match their tax-paying profile. So far, there has been no news on how much of unaccounted money has been ferreted out and what action has been taken against offenders. Of course, given the rampant tax evasion—just 3.2 million taxpayers declare an income of over Rs 10 lakh—it is natural to be sceptical of how successful the tax department will be. That is why, it is encouraging to learn that 1 lakh companies have already been de-registered since they are either defunct or non-compliant. That is a very large number of companies, even if these are relatively small entities. Moreover, this is not the first time shell companies are being targeted; in the three years between 2013-14 and 2015-16, the department recovered Rs 13,300 crore from more than 1,155 entities. That might not seem a very big amount in the context of the overall tax collections—total corporation taxes in 2016-17 were Rs 4.9 lakh crore—but it is a start. Should the department be able to replicate this with the new lot of 37,000 companies, it could result in meaningful sums being recovered. While enquiries of this nature should make both companies and individuals less complacent about evading taxes, the unfortunate truth is that most people are brazen and willing to risk not paying what they ought to. This can only change if the tax department is able to bring the culprits to book and penalise them.

 

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