The Hindu Business Line : Too loaded to be wide

NO BUDGET speech is complete without reference to widening of the tax base. While this year's Budget speech does not make a direct mention of this, there are specific provisions in the Finance Bill, 2005 that are targeted to increase the number of assessees, if not qualitatively at least quantitatively.

The Task Force Report (TFR) on the Fiscal Responsibility and Budget Management Act, 2003 has dealt at length with the methods to be adopted to protect taxpayer base whenever the slab rates are restructured. In a country with a population of over a billion, a taxpayer population of 34 million is abysmally low. Again, one is not sure whether assessees who file their returns pay their taxes appropriately. Investigations do throw up cases of concealment and evasion, but the process of bringing the offender to book is time-consuming and tortuous. Hence, the need is to ensure a culture of tax compliance.

The provisions

The obligation to file return of income for every person being an individual arises under the existing law if his total income exceeds the minimum amount chargeable to income-tax. In other words, in the process of utilising deductions under various provisions of the I-T Act, if his total income falls below the threshold limit, there is no obligation to file returns. An amendment is proposed in the Finance Bill to correlate filing of return of income with gross total income rather than the total income after utilising the deduction.

By this process, all persons claiming various deductions under Chapter VIA or Sections 10A, 10B, 10BA will be required to file returns even when their income after claiming such deduction is below the taxable limit. This will ensure the entry of many individuals into the I-T Department's records, though in reality they may not be have any taxable income. At least this information will act as a trail for any investigation that can be undertaken to pursue cases of concealment or otherwise.

Under the existing one-by-six scheme, irrespective of the levels of income, the return of income in Form No.2C has to be mandatorily filed where an individual i) owns an immovable property exceeding prescribed area; ii) is the owner of lessor of motor vehicle; iii) is the subscriber to a cellular phone; iv) has incurred expenditure on foreign travel; v) is the holder of a credit card; and vi) is the member of a club where the entrance fee is Rs 25,000 or more.

The purpose of this scheme is to capture a few transactions as the basis to decide the broad levels of income, thereby targeting such cases and detecting concealment of income wherever applicable. In the Finance Bill, 2005, criteria for subscribing to a cellular phone has been dispensed with, maybe because there are more users now and, in any case, a subscriber to a cellular phone in today's context has little relevance to his/her income levels. Instead, another criteria has been substituted viz. incurring an expenditure of more than Rs 50,000 on electricity bills.

The expenditure pattern of an individual can broadly give indicators of his income pattern. Electricity bills are moving northwards, especially in houses that have all sorts of modern gadgets. Therefore, the criteria of electricity bills seems to be a good indicator for deciding whether return of income has to be filed or not.

There is also a proposal that all partnership firms should file a return of income irrespective of their levels of income. This is obviously to capture the information and income pattern of all partnership firms so that it can be used at the appropriate time later.

Data mining and data capturing are necessary for ensuring better tax mobilisation. But what is being witnessed in the past few years is excessive data capturing. The purpose must not be merely of gathering and accumulating data but of utilising the information. Enough trails are available even under the existing schemes, such as surveys and tax audit reports, which are not being properly collated and applied. Instead, more trails are sought to be established through specific amendments to the law.

Time has come to review the various provisions which focus on gathering of information and generating assessee trails. If some of these provisions have not achieved their objective, they need to be deleted or modified. At the end of the day, the proof of the pudding is in its eating and this cannot be achieved by mere information gathering.

(The author is a Chennai-based chartered accountant.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Opening the skies

India-China trade: Win-win situation or zero sum game?

Asian century

Eternal debate on tax avoidance

Too loaded to be wide

Everything in life is somewhere else, and you get there in a car

The levy caravan moves on

Teeing off with EET

Bank on privatisation for efficiency

How surplus accumulates in our villages and towns