The Hindu Business Line : Laxity in tax compliance

EVERY legislative enactment that requires compliance has to be backed by provisions that deter non-compliance, and the Income-Tax Act is no exception to this rule.

From the earliest times, in most countries the law relating to income-tax has included provisions for, among others, finding out and punishing those who do not file their returns and evade taxes and prosecuting those found guilty of non-compliance.

In the case of non-filers or wrong filers of returns, search and survey provisions have been enacted.

However, the recent Comptroller and Auditor General (CAG) report for the year ending March 31, 2004, shows that there has been considerable laxity in the efforts of the tax department in resorting to enforcement provisions.

Corporate assessees

The I-T Department does not seem enthused about bringing to the tax net even entities in the organised sectors, such as companies.

The number of companies at work, according to the Department of Company Affairs, as on April 1, 2004, was 6,41,498, while those on the record of the Department in 2003-04 were only 3.72 lakh.

This is despite the fact that the third proviso to Section 139(1) stipulates that "every company shall furnish on or before the due date, the return in respect of its income or loss in every previous year".

This merely shows lack of vigilance and efforts to nab such known non-filers, which should not be difficult at all.

On the search and seizure front, the performance has been equally unsatisfactory.

It is not suggested that search operations should be carried out in a routine or mundane manner. But when there is so much talk about catching tax evaders and checking black money, the performance thus far can, by no standards, be applauded. Of the 74,332 penalty cases disposed of in 2003-04, penalty was imposed only in 34,661 of the cases — 46.6 per cent of the cases disposed of. While 64 per cent of the total cases for disposal pertained to concealment of income, only 19.28 per cent were disposed of. As regards prosecution cases, in 2003-04, only 0.97 per cent of the total cases for prosecution were disposed of. As many as 41.74 per cent of the cases resulted in acquittals and a mere 10.44 per cent in conviction.

Such a situation is continuing year after year, barring in 2002-03, where in 404 cases, compounding was done. This merely indicates weakness in the cases launched.

Thus, the Department's performance in the area of enforcement has been dismal. To increase the tax base and improve compliance, enforcement needs to be given more attention rather the `one-by-six' scheme or experiment with new levies such as the banking cash transaction tax.

Successful implementation of tax laws cannot be ensured merely by legislative efforts and adding more clauses to the I-T Act through the annual Finance Acts.

Administrative vigilance and greater efficiency, along with emphasis on accountability for those found lacking in competence, are required to improve the situation.

(The author is a former Chairman of CBDT.)

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