Do not tax and please, Tax please

Sincere Applauds for the Hon’ble Prime Minister and Hon’ble Finance Minister for unveiling the Tax Charter and announcing the Tax Reforms like faceless assessment which will reduce corruption and help honest tax payer.

As a law student ( because at the end of the day Income Tax is a Law and not an epic like Ramayana), some of my comments on Charter which might also be raised by Tax officers and Tax payers.

Treat Taxpayer as honest / Be Honest – Define honesty

Collect right amount of tax due as per law – crores are spent every year by tax payer and department to know the right amount

Taxpayer should keep records and respond in time – Why not the non taxpayer ( who is supposed to pay but choosing not to ).

So Income Tax Notice may look like this

Dear Honest Tax Payer,

Hope you are keeping Safe and having a good time. May we request you to kindly pay Rs. 832500/- alongwith interest of Rs. 167500/- which is the correct amount of tax under section 68/115BBE on Rs. 1000000/- received by you from your son in your bank account and converted into Fixed Deposit, reported to us as Significant Financial Transaction and for which you could not provide satisfactory explanation in timely manner.

Please do not forget to pay tax on the interest you earn on the Fixed Deposit. If you need any assistance we are always at your doors.

You are requested to also provide address of your Honest Son, so that we may help him also in fulfillment of his duty as a Citizen and make necessary compliance under Benami Transaction Act*.

If you are not satisfied with our service please call our toll free number xxxxxxxxxx.

If you wish to appeal against this order, attached is the 50 pages ‘Guide on how to file appeal’.

Sincerely Yours

Tax officer.

*financial asset purchased by son in the name of father may be interpreted as benami transaction as per English written in the Act.

Apologies and now getting serious. In my experience, lately, the 'harassment of honest taxpayer' infamously and I believe unfairly called by few people as ‘Tax Terrorism’ is not just due to corruption but also due to collection pressure. While territorial jurisdiction has been abolished which may also mean no more collection target by commissionerate but would Tax Department as a whole not be under Collection pressure especially after the huge Covid Bill. What if there is sudden drop in collection because the evader will now find it easier to fool the faceless system. If yes, then is there an assurance that unfair, high pitched assessment orders will not be written by the faceless department to meet target and if so they will not be given to the honest tax payer.

The returns will be picked up for scrutiny on the basis of data analytics and AI. What are those ? SFT ? Has to be a joke. Calling every retired senior citizen and asking questions on his Fixed Deposit and Mutual Fund purchases. Yes the scope of SFT is being widened to include Insurance Premium, Medical bills and Hotel bills but the people I am talking about do not invest in Insurance, they invest surplus cash in committee, cash loans to other, they are trustee in hospital who facilitate their cash payment and if few of these transaction will be reported in SFT they will be justified by their Tax Return which has only a small fraction of their real Income. The larger part of their Income and Wealth is still rotating in form of Cash, and once these people become big with help of tax they have evaded they are able to hire corporate white collar who provide them advanced money laundering vehicles and suddenly you hear about a new Rags to Riches story.

So this new longer SFT or 26AS with reporting of hotel, hospital , school fees, electricity bills which increases the size of question paper for honest middle class tax payer is actually a big joke for them in difficult times. Who will report the data on massive cash in circulation, which always stays so and which has rather increased after demonetization ? Is the rumour true that that there is a chip in the 2000 Rs. Note which will provide these data analytics. How many of massive money laundering activities running in trillions have been unearthed by the ED and tax collected. Perhaps now they have found the gorgeous kingpin of all of those money laundering vehicle and these days busy questioning her. I do not want to talk about cash held by politicians and political parties. I am sure after reading the Tax Charter, they will declare that in the next election form. I am sure all the Benami properties of bureaucrats have been seized by Tax Officers including their own. Now, they will dig out black money from black dal you had in the hotel and which will be on your Tax profile. I read about Tax department deploying an AI tool which will analyse social media of people to find out tax evaders. So here I wish to say to the AI system that the picture I am using in this article has been picked up from Internet from a Black Money article. But please do not spare people who are posting pictures of hugging this stuff in their bedroom. But if you looking for pictures against Eiffel Tower and on London Bridge, please spare my milkmen who went on holiday last years on 30000 Rs. air-ticket.

This is true that extra-ordinary powers ( like section 68 which referred above) are needed for Tax-Men to catch evader who are always smarter and one step ahead of them. However, there is no mechanism under law to protect honest tax-payers from the use of these powers against them. Honest Tax Payer therefore either resort to satisfying the demand of Tax Officer if he is corrupt or land up facing harrassment and paying taxes higher than they should be paying since they do not have resources to fight a long litigation which in initial stages mostly works in favour of Tax Department ( remember, the Government few years back came out with a scheme to incentivise CIT-Appeals for enhancing Tax Demands ). Tax Officers are not supposed to and do not analyse the character of the Tax Payer. They have powers to tax fairly and unfairly ( which is always fair for them by virtue of words written in Income Tax Act ) anyone and everyone who comes their way, honest or dishonest ( As I said IT Act does not define 'honesty') and they do so and will continue to do so with or without face to meet their targets. The evaders always go scot-free by paying an extremely insignificant part of taxes they should be paying or sometimes not paying any tax at all since they are either not picked up for scrutiny since they are completely outside the formal economy and deal 100% in cash and the tools used by Tax Department like SFT can only apply to those who are part of formal economy. Even if they are picked by so, they have the financial power to fight the long litigation, a significant contribution to which is made by the taxes they have been evading for years.

So if the Government has to help the honest, they have to catch the evaders so there is no collection pressure and they are not required to tax the poor. Which then along with faceless assessment and a requirement of minimum compliance will save the honest. For example, the entire Income of salaried and professionals are covered by TDS, so why can’t they, unless they have any other income to declare, be assessed on the basis of TDS data and why should they be required to fill complicated Return Forms and keep account of their electricity expenses, bank accounts ( these data are anyways with Tax Department) and million of such other things which is the real harassment. The evaders are getting stronger every day on the strength of taxes they evade and honest are getting weaker everyday due to taxes they pay and compliance harassment they face. This viscous cycle will never bring justice in the taxation system of the country and will also never bring social justice or end of social evils like corruption, black money, frauds, adulteration, exploitation etc.

The evaders are out there and in plenty, free and prospering. In my estimate, there would be lacs of traders, factory owners, brokers and commission agents, real estate dealers in Delhi NCR only who have seven to eight digit income for ages and do not even pay an insignificant fraction of tax they would be required to pay. Some of them do not pay as much as the TDS deducted on salary of a junior/middle management salaried employee and many of them did not even file Return till recent past. They defeated the ‘brahmastra’ of demonetization fired by the Government with the Army of Money-Mules and experienced Commanders ( Tax Advisors ). It is impossible for the Tax Men to capture even a small fraction of those Mules which are like Locust swarm in the country. These evaders get stronger with every calamity and honest get weaker ( e.g., during Covid they made a fortune selling masks, sanitisers sometimes fake, groceries, while the honest lost the jobs ). They continue to organise stupendous marriages even during Covid, have stayed safe in their farm houses while their staffs died, In my opinion, this is real Terrorism.

These people raise a hell when they are attempted to be taxed. I explained in one of my posts that how people living below poverty line are taxed in our country which no one talks about but when a super rich tax is brought it is severely criticised to such an extent that the IRS officer who proposed to fund Covid through a super rich tax was suspended. On the other hand, the UHNIs in the UK have themselves approached the Government to levy a super rich tax to on them to fund Covid.

In my view, the Government will be able to meet the final end of social justice while also putting the country on a rapid growth path if they can write just one book correctly – The Income Tax Act. ( I can write volumes on what and how)

Anyways, coming back to the todays news, I believe the part of Tax Department which requires reforms, automation, transparency and strengtening is the one which is supposed to catch such evader who are running the informal economy in this country i.e., Investigation and Intelligence and which currently is completely dependent on human. It has face as well as pockets. I believe they can collect revenues worth one months target on just one of the busy wedding nights in Delhi. ‘A Tax Men at every Wedding?’ , come on this is ‘Tax Terrorism’ , No. It is not. Why can’t you keep your seven seas catering bill handy there, look above, I have been asked for my petty electricity bill.

Some measures have been taken in this direction which are seriously not enough and are being ridiculed. For example, TCS on cars above Rs. 10 lacs. It may have helped. Now, these people when they have to buy their Jaguar they will declare instead of millionth perhaps the thousandth part of their income and will be able to suitably answer the faced or faceless AO. The hardship they will face will not be much higher than a young corporate executive who will choose to buy a Maruti Ciaz with his first few salaries. The AO will never in his capacity be able to assume that the person who just bought a Jaguar and had to declare it due to TCS, previously must have had BMW, Mercedes and Audi and must be living in a 50 crore house for which he would have paid 40 crores cash and therefore his 1 crore tax return is not enough. And then you cannot conduct investigative survey ( which is publicized as Raid) on everyone. It will be ‘Tax Terrorism’. Even if you do, the process will be driven by faced humans who could be corrupted.

So, is there any solution ? I have little idea about how CBDT or Tax Department strategise to meet their business targets, but if I would have been given to do it as a CEO I would done few things which would have ensured meeting targets ethically and without harassing honest ( and Yes I have a definition of honesty also) . Do they want to know ? Please enter your sixteen digit credit card number. Thanks.