The Hindu Business Line : `Black' is not beautiful

In November last, there was a news report about an in-house expert committee set up to recommend to the Government a scheme which would include, among others, measures such as voluntary disclosures, demonetisation of currency and issue of black money bonds.

Also, a declaration was made that black money found shall be used for social schemes.

Black money is generated by omission to report correct incomes to the income-tax department, manipulation of accounts by making fraudulent entries, doing business outside the books, opening bank accounts in bogus names, inflating expenses, and indulging in illegal activities (such as gambling, smuggling and drug trafficking) and hawala businesses (about which no correct estimate is available despite various attempts to do so).

The former Finance Minister, Prof. Madhu Dandavate, had said that black money in Indian economy was Rs 70,000-80,000 crore.

In 2000, the Central Vigilance Commission estimated black money to be around 40 per cent of GDP.

To tackle the menace of black money, the emphasis has all along been on amnesties/voluntary disclosure schemes. But these have not helped solve the problem.

The schemes merely addressed the problem of `stock', that is, accumulated money, and did nothing to check the generation of black money.

Even the revenue collected has been meagre. The collection costs have been high, as the collections were made by foregoing substantial sums by way of interest and penalties.

Also, the deterrence impact was lost because of waiver of prosecution.

Other measures such as demonetisation of currency and the issue of income bonds (the Special Bearer Bonds of 1981, for instance), too, have failed.

The bearer bonds, basically instruments to tap accumulated funds, created further avenues for investment of black money with the added advantage of anonymity/immunity for the purchasers.

The focus of the I-T Department, thus far, has been more on legislative measures. It is time that the attention turned to administrative aspects. What follows are some suggestions in this regard:

Making use of the powers conferred under the I-T Act: The most potent way to track evaded incomes and erring taxpayers is survey — internal and external.

Even in the current computerised regime, no foolproof system of information gathering, dissemination and matching has been successfully evolved. More attention needs to be paid to this aspect than on formulating amnesty schemes;

Door-to-door survey needs to be revived with adequate safeguards and precautions. The potential for detecting tax-evaders through this source has always been high.

For example, after the Public Accounts Committee (PAC), in a report to the Fourth Lok Sabha (1967-69), noted stagnation in the number of assessments relating to property income in Delhi during the first half of the 1960s, the CIT (Delhi) allocated 15 inspectors to enquire into new constructions.

The immediate result was some 2,500 new wealth tax returns.

Such surveys should be revived by giving them statutory backing;

Section 133A(5) confers authority on the assessing officers (AOs) to gather information on ostentations expenditure in connection with any function, ceremony or event.

This provision, if carefully and effectively used, can disclose a lot of information about black money. But it has seldom been resorted to. It needs to be used efficaciously, without hurting the sentiments of those involved;

Exercise of the power to call for information from outside sources concerning individual assessees has almost ceased. Many cases of evasion would surface if the power conferred under Section 133 is discretely used;

Annual Information Returns, provided for under the newly introduced Section 285BA, give valuable information on evasion. These need to be scrutinised as and when received and must not be allowed to accumulate;

Better use of the search and seizure provisions will not only provide information about black money, but also act as a deterrent for others;

Lukewarm policy towards tax delinquents has to stop. Provisions relating to penalty and prosecution have to be used effectively against tax criminals.

A. M. Nremner, while giving evidence before the Royal Commission on Income Tax in 1920, said thus:

"The real way to prevent fraud... is that fraud should be punished by terms of imprisonment; that is the way to stop it. It will never be stopped in any other way; the temptation is so great now.

"People must be made to understand that if they defraud the Revenue, they are committing a mean and despicable offence against every one of their fellow taxpayers."

Convictions, thus far, have been dismally low. Early disposal of prosecution cases through special courts with procedures would provide adequate deterrence against tax crimes;

Accountability concerning assessing officers' work is to be strictly enforced. Effective administration of tax codes requires integrity and probity. While good work should be rewarded, there should be no reluctance or delay in punishing those who do their work casually;

A programme for inculcating a sense of duty should be planned and adequately publicised;

Coordination with agencies involved in the collection of excise, Customs and service taxes should be ensured on a regular basis; and

The Wanchoo Committee had made some very useful suggestions, and these are still valid and need to be implemented.

An efficient tax administration is essential for a successful programme to eradicate tax crimes.

As pointed out by Mr Schultz, an American writer on public finance, "A haphazardly-run office can no more be successful in its operations than a carelessly conducted business enterprise.

"If evasion is not to be widespread and if the taxpayers' money is not to be wasted in inefficient tax assessment and collection, a technique of tax administration must be developed."

(The author is a former chairman of CBDT.)

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