Tax dodgers declare hidden loot
By Suren Gnanaraj
The government last week extended the amnesty for tax dodgers till August 15 in an effort to bring more people into the tax net. The Inland Revenue Department has less than 400,000 tax files, one reason for which is that government employees, including Members of Parliament, are exempt from tax. Many legitimate taxpayers have voiced their dissatisfaction over the benefits offered to tax offenders and have also claimed that they are being harassed by Inland Revenue authorities. In the light of these views, The Sunday Times FT spoke to the Commissioner General of Inland Revenue Mr. K. Suseelar.
Why are there so few income tax payers?
One of the reasons for this is that 800,000 government employees are exempt from tax. That's quite a large percentage. Another factor could be the lack of technological expertise within the Inland Revenue task force to track down tax evaders. This is a severe drawback when compared with systems used in developed nations, where information technology is used to store records and hunt down tax evaders. However, with the setting up of the Inland Revenue Authority, we intend to re-train our staff to be better equipped in using technology to meet the growing demands, which is likely to take two years to achieve.
Some time ago the Inland Revenue Department tried to get banks to furnish details of account holders with huge deposits, which was subsequently dropped after banks resisted. Does the department have the legal power to enforce such claims?
The existing laws are sufficient for the department to obtain general information from any institution. It was an administrative decision of the department not to compel the banks to provide us with general information such as the names of those account holders with deposits over one million rupees. But the banks are under an obligation to provide specific information on any person at the request of the department.
Has the department used other methods such as using RMV records to track those who own expensive cars?
We have a separate information branch, which obtains information from institutions such as the RMV and Municipal Councils. The department can track down vehicle owners who are not on the tax register, and the Municipal Council records shed light on property owners evading taxes.
The Inland Revenue Department in its annual report lists out the names of the tax offenders. Why is it not given more publicity, on the lines of a 'Name and Shame' policy?
It is an administrative decision to publish the list of tax offenders in our annual report. The decision does not extend to giving the list any further publicity by publishing it in the newspapers.
Are there any legal impediments?
No. Our laws do permit us to give these names publicity. However, we believe that some people don't like it, as it would cause undue embarrassment.
Isn't that unfair? Can it not be construed as an attempt to safeguard the image of big wigs of society?
No. Our purpose is not to protect the image of tax defaulters. After all, we still publish the names of tax offenders in our annual report.
Would you agree that a 'Name and Shame' policy could ensure a strict compliance of tax payments by those who aim to safeguard their image?
Yes, I do.
Businessmen who don't pay taxes - what advantage do they gain over those who do pay their taxes?
Excessive profits. All indirect taxes are passed on to the consumers, so they just make clean profits. They are able to increase their investments. You may have seen the way so many businessmen spend so lavishly. It's all black money that's floating around.
How do you respond to complaints made by legitimate tax payers that Inland Revenue officials keep harassing them while allowing a large number of tax dodgers to go free?
Harassing is a relative term. Most people don't like to pay taxes and that's human nature. So when you're strict with those who default payment, they claim it's harassment. Collecting taxes is no easy task. So it's a tough compromise. People also need to be aware of the reason why taxes are levied from them and its benefits. Many people forget that taxes provide the resources for free education and health care in this country.
Consumption taxes are deemed to be the best form of taxation where the population can be segmented and higher taxes charged on luxury goods and lower taxes on essentials. However, this requires several layers of taxes or tax bands, which the department rejected as being difficult to administer. Why?
We had this system of multiple rates where the tax margins were between five percent and 30 percent, with several bands in between. It was always a case of which goods should be taxed on what percentage, which also led to several disputes between taxpayers and the department. So we needed a more clear cut system which was uniform, and I think anyone can assess the tax on goods fairly easily under the present system. Multiple tax rates are less regressive. Generally in developing countries there is a wide disparity between low income and high-income groups. Therefore, when there is a single rate, low-income groups inevitably pay a higher percentage on tax, than high-income groups. However, every system has its strengths and its weaknesses.
What sort of declarations have been made under the tax amnesty so far?
It's still too early to tell, since we have close to 200 people a day making use of this opportunity, and we expect the figure to rise as the closing date draws closer. So far more than 4,500 people have used this amnesty.
What do these declarations reveal about the nature of black money in the economy?
Most of the declarations have been made by existing taxpayers. However, a final assessment can only be made once the deadline ends. As to the volume of black money, it's not easy to give any estimates because it is commonly hidden away in foreign bank accounts, where the department does not have the facilities to trace.
How have the tax dodgers been able to hide their assets from the eyes of the department?
Methods such as Certificates of Deposits (CDs), gold, foreign currency and understatement of stocks are popular modes used by businessmen to store black money. CDs are the easiest.
Any special plans set in place to monitor all those who used this tax amnesty?
No. New tax files would be opened for those coming under the net and they would be monitored under the normal procedures.
Doesn't the amnesty open up interesting possibilities such as, for example, what is to prevent anyone from declaring wealth they do not have and later, after the amnesty is over, launder their or other people's black money made later, so that if questions are asked at that stage they can say it had been declared under the amnesty?
Yes, it is a possibility, because under the amnesty we are compelled to accept the taxpayers' statement. The amnesty requires us to trust them, so there is a possibility for this system to be abused. The tax amnesty legislation also prevents us from carrying out any investigations or inquiries into previous years' records.
What do you see as the future of the Inland Revenue Department in terms of increasing tax awareness and ensuring that more people are brought under the tax net?
Under the new Inland Revenue authority, we intend to make our task more customer oriented by educating the taxpayer on tax issues and procedures and making the whole tax paying process far less complicated.
Legitimate taxpayers have demanded that they be given some reward, highlighting the fact that luxuries such as the tax amnesty have only been afforded to lawbreakers. Will the department remedy this imbalance?
I'm aware that all legitimate taxpayers feel that they have not received any benefits by obeying tax laws. The only possible benefit that they may get is that all tax liabilities within the last six years would not be scrutinized by a department audit. Our aim is to give everyone a fresh start.
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