After the special investigation team (SIT) was set up following Supreme Court orders, there are hopes of a decisive action to unearth black money stashed abroad
One of the first actions of the Narendra Modi government was to set up a special investigation team (SIT) to track black money. The decision is not merely about a poll promise. No amount of hard work will bring the economy on track, unless the government finds a way to raise revenue innovatively. With a fiscal deficit of 4.47% of GDP (gross domestic product) and a lot of ‘unpaid bills’ (the unpaid subsidy bill alone is expected to aggregate around Rs1 trillion, says an article in The Mint), the government has the tough task of meeting sky-high public expectations with very little manoeuvrability.
Forcing rich Indians to bring back the wealth stashed overseas is certainly a better option than the Congress formula of draconian taxes, complex compliance processes and harassment, followed by amnesty schemes every few years to let tax-evaders off the hook. In any case, the Supreme Court (SC) had closed this option and also set a deadline for the black money issue.
The Congress-led regime has been dragging its feet on this issue for over five years, despite specific information available from France and Germany. That Indians have money stashed abroad is not a myth. Various global organisations have attempted to quantify the amounts from time to time. One such is Global Financial Integrity (GFI) which estimated black money outflow from India at a whopping $344 billion in the decade of 2002-11, of which $85 billion was in 2011 alone; India is ranked fifth in the world in terms of illicit outflows.
Why do we expect the Narendra Modi government to be different? First, an extremely credible person like Justice MB Shah has been asked to head the SIT. He has already held its first meeting. Secondly, it will report directly to the SC and this empowers it enormously. Thirdly, we have a strong leader at the Centre who is not burdened by coalition compromises. Finally, this is an issue that the Bharatiya Janata Party (BJP) leadership has agitated before the apex court and in the court of public opinion. Failing to act decisively will irreparably damage its own credibility.
Corporates and taxpayers alike have been harassed by the 'tax terror'. It is time to put an end to the income tax department's misadventures
Prime minister Narendra Modi’s second major initiative within days of forming the government is initiating the much-needed tax and law reforms. The government has indicated that it plans to amend the controversial retrospective amendments to the Income Tax Act that were introduced to overturn the Supreme Court verdict on Vodafone. The amendment has been used by tax and enforcement agencies to harass several leading multinationals and had spawned hundreds of litigations in forums across India. While business houses and chambers of commerce were publicly silent, it was common knowledge that several multinationals, including some automobile giants were contemplating pulling out of India as a reaction to the UPA’s repressive tax regime and arbitrary interpretation of regulations. Many held back only on the hope of political change after the elections.
Interestingly, Mr Modi is also set to deliver on his election promise of good administration and rule of law. The PM has asked Union secretaries to give him a list of laws that can be scrapped fast. A detailed list of such laws, based on the findings of Dr Bibek Debroy, is already available in his book In the Dock. Interestingly, Dr Debroy says that the last time that a set of redundant laws was scrapped was in 2001, when Arun Jaitley was the law minister, again under a BJP-led government. Nothing moved after that, despite the huge public clamour for judicial reform to end the harassment of people through ridiculously outdated laws.
Moneylife readers are waiting, with eager anticipation, for action on another promise—income-tax reforms. We have already published two Cover Stories that have detailed how draconian TDS (tax deduction at source) provisions have not only forced people to act as unpaid tax collectors for the government, but also imposed harsh penalties for every lapse. One continues to come across newer details about the unfairness of the system.
On 3rd June, Punit Ved wrote in The Economic Times about how refund laws were stacked against income-tax payers. In a nutshell, he says, if the taxpayer fails to pay tax, or to pay on time, she is subject to severe punishment—12% interest and a 12% penalty. However, if the tax department is late to refund, it pays a mere 6%. What makes it draconian, says Mr Ved, is that the interest paid by the taxpayer is not allowable as expenditure while computing taxable income whereas the interest received by the taxpayer is taxable and gets further reduced post-tax. This unfair system, he says, is an important cause for corruption.
In the past few years, several taxpayers, including retired senior citizens living on their savings, have complained that the government is unilaterally adjusting their legitimate refund to fictitious demands going back to 2001-02. The amounts, often, run into a few thousand rupees but there is no easy redress. They are forced to run from pillar to post. Nagesh Kini, retired auditor and chartered accountant, says that these mindless orders covering 10-12 year-old ‘income’ have emanated from the Central Processing Centre at Bengaluru. Aggrieved by such orders, he suggests a class-action approach to the income-tax ombudsman. Unfortunately, victims of the tax department’s expropriation are usually lacking in leadership to make their case as a group. People who have been waiting for achche din (better days) to begin are hoping to see some far-reaching changes on this front too.
Multiple director identification numbers (DINs) held by politicians, like Priyanka Vadra, Karti Chidambaram, Sachin Pilot and Piyush Goyal should be dealt with sternly and permanently before it becomes a hot issue
The PM has asked all his ministers to come up with a 100-day agenda for change. He has also warned his government to beware of sting operations that could undermine their credibility. Put these together and we believe that the articulate Nirmala Sitharaman, who heads the ministry of corporate affairs (MCA), will need to do something about the din of DINs (director identification numbers).
While in the opposition, BJP leaders, led by Dr Subramaniam Swamy, managed to embarrass the Congress by showing that many Congress luminaries had had multiple DINs. Priyanka Gandhi Vadra had three; Salman Kurshid, Sachin Pilot, Abhishek Manu Singhvi (each had four), Captain Amrinder Singh, Kanimozhi Karunanidhi, Dayanidhi Maran and the former finance minister’s son Karti Chidambaram (an astonishing six DINs) and his wife Nalini Chidambaram (two), according to the web portal niticentral.com.
DINs are supposed to be unique because they are linked to the permanent account numbers (PAN) of the income-tax department. There is a tedious registration process to ensure that there is no duplication. However, typical of the Congress rule, its powerful leaders were apparently above the law and the stifling red-tape that harasses ordinary law-abiding citizens. A counter report suggested that Piyush Goyal, a minister in Narendra Modi’s government, also had two DINs. According to his public clarification, corroborated by auditors, the rules earlier allowed third parties to apply for DINs without supplying PAN or self-attested documents and a provisional DIN was generated. It was cancelled if the process was not completed.
The rules have since been changed. Not only can a person not have multiple DINs but doing so is a punishable offence. We need Ms Sitharaman to order an investigation and ensure that the process of granting DINs is not a leaky sieve that lets off the powerful but punishes lesser mortals with imprisonment and fines. As with income-tax, such leaky and unfair rules only create opportunities for corruption and harassment.