The demonetisation drive was a shot in the arm of the Income Tax Department. In the wake of its sudden announcement, lakhs of entities and individuals, scurried to deposit their cash on hand, often unmindful of their tax status. They thus provided valuable black money leads to the ITD. The cash deposits were analysed and data mined by a crack team of CA’s/ lawyers, engaged to assist the Income tax sleuths. They quickly matched the cash deposits with the tax profile of the depositors and identified almost 2mn suspicious deposits/depositors. Those that looked outright bogus/ dubious were immediately subjected to search/ survey and are reported to have unearthed undisclosed income of 23144 crores. After eliminating cases that got explained, the government is now investigating over a lakh of what it calls high risk entities, in its post demonetisation, ‘Operation Clean Money’ drive. They are being investigated, not just for income tax violation, but also for possible money laundering and FEMA violations. The gains in terms of tax compliance have been remarkable. The online income tax returns filing has increased by 22% to 5.28 crores, over 91 lakh additional assesses/ taxpayers have been added and 60000 entities who reported unusually high cash sales during the demonetisation days are being investigated. The demonetisation drive has resulted in increased tax collection, enhanced digitisation and a fear of cash transactions. The gains were obvious. The results were good but not spectacular. There has been no dip in corruption, since cash is back in circulation. Moreover conspicuous by its absence is the government’s official figures on how much cash was deposited back. The government’s silence gives wind to unconfirmed reports that the cash deposited far exceeded the official currency in circulation by almost Rs. 4 lakh crores. The government needs to investigate and clarify as to how did the cash deposits exceed the official currency in circulation. In the meanwhile, the Reserve Bank under the security of the Army, continues to destroy the old notes, which will take months.
With the politically sensitive Gujarat elections looming on the horizon and the detractors like Yeshwant Sinha giving ammo to the Opposition to target the government, in the wake of a fall in the GDP growth, in addition to the PM’s aggressive defence of his performance on the economic front, it was imperative to modify the GST, to set right the glitches and errors visible due to the hundred days of its implementation. It was time to recognise the ground level experience of three months of GST, which revealed its errors and pain points. These included a need to rationalise the GST rates and the apparent inconsistencies therein, to reduce the burden of compliance on the small enterprises, to bail out exporters whose massive refunds were stuck in the system, to grant input credit to the manufacturers and to dispel the lingering fear of opening of past records, in the case of those who joined the tax regime for the first time. In a timely move the national GST Council in its twenty second meeting has recognised these difficulties and in order to provide immediate interim relief, has modified the GST regulations, It however cannot be denied that the changes reflect the ruling party’s anxiety over the forthcoming Gujarat elections, having provided relief to the textile, jewellery and food items segment, the mainstays of the Gujarat society/economy. In a much needed relief, the small businessmen who were facing problems in filing monthly GST returns, have now been permitted to do so on a quarterly basis. The threshold of the composition scheme which gives relief to the small tax payers, has been increased from Rs.75 lacs to Rs.1 crore and the reverse charge mechanism has been deferred till March 31, 2018. The massive pending tax refunds of the exporters, which had blocked thousands of crores and was obstructing their business, will be cleared in the next two weeks. A marginal GST of 0.10% will be levied on merchant exporters until March 31, 2018 and will be reviewed thereafter. In order to mitigate the blocking of funds of exporters, an E wallet facility will be available to them from April 1, 2018. While the GST rates have been reduced on 27 items, yet in order to avoid any adhoc changes in the GST rates, it has been decided to set up a committee to frame the principles to reduce rates, depending upon the emerging GST patterns. The changes in the GST are welcome and are expected to set a trend of such amendments, based on the overall picture of GST and its administration/compliance that will emerge in the coming years. The difficulties that a producer/consumer may face due to any irrationalities in the law must be removed at the earliest. Moreover the transition pain caused by the onset of the GST too will be mitigated if the changes are timely and rational, without the temptation of any political agenda therein.
The onset of the GST on July 1, may be sad and sombre day for the thousands of octroi agents, touts and their ilk, (who have been rendered jobless), operating at the octroi nakas of Mumbai, where every goods vehicle that entered Mumbai was forced to pay a bribe, but for all others, it is a day to rejoice. Together with the BMC officials posted at these octroi checkposts, they made life miserable for the traders/businessmen, not just by the bribes they extorted, but moreso by the delays they inflicted on the smooth movement of goods. Even if all the papers of the goods vehicle were in order, the rigours of bribe or else harassment was a must. Octroi netted an annual revenue of Rs.7200 crores for the BMC, but with an average waiting period of 3-5 hours per truck, the traffic jam/pollution it caused and the corruption it infested, it meant a much bigger loss to the city’s business community. It was a collective mafia at the octroi checkposts, which made operations difficult for the traders and transporters. With the State Government agreeing to compensate the BMC, for its loss caused due to the abolition of octroi, which has been subsumed into the GST, the same stands terminated. With an unobstructed movement of goods, the traders and transporters who have been tormented by octroi, since its levy in 1965, are an elated lot. The irritating extortion and delays at the entry points of the city are finally consigned to history. With the dismantling of the octroi checkposts, there certainly is a considerable improvement in the ease of doing business in Mumbai. It is unfortunate that the BMC ignored the larger interests of the city and continued with this regressive tax for decades. It led to the relocation of many businesses out of the octroi limits of Mumbai, but the BMC cared little. This eroded its pre-eminence as India’s commercial capital, which is incidentally enjoyed by Delhi today, but the BMC, which is more keen to pander to the interests of the street mafia was indifferent to it. The octroi agents/touts maybe downcast now, but so were the city’s trader/transporters for decades.
Income Tax Disputes
Income tax disputes have been rising in India, year after year. The CBDT, India’s apex tax authority, notes with concern, that over Rs. 6 lakh crores of tax, is stuck in dispute, at various stages of appeal, involving 3 lakh cases. While the likes of Vodafone and Cairn Energy, victims of retro tax terrorism, are the high profile cases of tax disputes, it is not that only the big corporates are embroiled in tax disputes. Almost 67% of tax disputes involve tax demands of less than Rs.10 lakhs, indicating that the scourge of tax feuds is rampant and pervades the entire system. While the complicated/byzantine tax laws are fertile grounds for controversies, they are further aggravated by pro revenue tax officers, always eager to interpret the laws in the manner that favours the Revenue. The tax officers prefer to err on the side of caution and do not hesitate to create unjustified tax demands on the tax payers, compelling them to seek redressal in appeals. The fact that an overwhelming majority of such cases are decided in favour of the tax payer and against the Revenue, has not been a deterrent to the prejudiced tax officers. There is also no review process in the system to reprimand/warn those tax officers who created frivolous tax disputes on the hapless tax payer, subjecting him to extreme stress and harassment, as also expensive litigation to protect his basic rights. If the CBDT is worried about the rising tax disputes, then its resolution lies in ensuring that tax payers are given reliefs which they are entitled to and that those officers who deny such entitled relief to the tax payers and cause them agony are reprimanded. Arbitrary interpretations, which are outright rejected by courts must not be permitted. Apart from the harassment caused, they also disillusion even an honest/law abiding tax payer. Bonafide claims/conduct must be differentiated from the malafide ones. The latter must be subject to harsh penalty and prosecution, but certainly not the former. The emerging trend in tax administration, of punishing tax payers (whether bonafide or malafide) with the same stick, is bound to breed further corruption and resentment among the tax payers. If the CBDT is seriously worried about the huge tax demands in dispute, it must conduct a fair review, mindful of the fact that the Tax Department loses a majority of its cases and must offer a fair settlement, outside the unending judicial process.