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Tuesday, 03 March 2015 08:44
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Careful on those extra powers for the taxman

Given the way the BJP’s top leadership has hyped up the issue of black money, especially that in overseas banks, it is not surprising the government is planning a series of legislation on this—one for money held overseas and another for domestic black money. Though the issue is emotive, and will be a big hit with the lay public, this is a bad idea. For one, there are enough estimates that suggest the proportion of black money is falling as the economy is being liberalised. Take the coal auctions that the BJP is justifiably proud of, having got R1.21 lakh crore over a period of 30 years for the mines already auctioned. In the past, since there was no transparent manner of getting auctions, bribery was the only way out, and that furthered the black economy; ditto for telecom auctions versus the A Raja period when discretion decided who got spectrum. Indeed, lower tax rates, and collection of data on expenditure from various sources, has done more to expand the tax base than drives to unearth black money, including the most successful scheme ever, VDIS 1997—it unearthed black money equal to just 2.3% of GDP in that year; better tax compliance through VAT or GST or intelligent matching of PAN numbers with annual information returns will fetch far better returns.

While it is not clear how much Indian money is stashed in overseas banks—for years, the participatory note route was said to be the route through which Indian black money was coming back into the country—or how much black money there is in India, the cure cannot be worse than the disease. Of the R5.8 lakh crore of outstanding tax demands raised, a little over R5 lakh crore is under dispute—indeed, in many cases like the celebrated Vodafone and Shell ones, the cases were struck down by the judiciary. Imagine the consequences if, while issuing the tax demands, there was the possibility of up to 10 years of rigorous imprisonment as is being proposed for the overseas black money bill. In the Microsoft case, and many other high-profile transfer-pricing orders issued involving local subsidiaries of overseas firms, the taxman argued the companies were mis-declaring or concealing income. At a time when the government is trying to lower the pitch of tax assessments —that is why GAAR has been put off for another 2 years—arming the taxman with such draconian powers is a bad idea.

 

 

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