The Hindu Business Line : The unexplained retreats and status quo

A couple of years ago, the government backed off from an excellent anti-tax evasion measure — the pre-emptive purchase of immovable properties scheme — that had stood the test of time despite constant manoeuvres to wriggle out of its clutches. The scheme consisted in asking prospective sellers to give the details of the proposed sale beyond the specified thresholds to the appropriate authority, which, if convinced of understatement of actual consideration, would go ahead and purchase the property on behalf of the government, frustrating, in the process, attempts at taking a part of the consideration on the sly, often in cash.

Despite attempts at outwitting the system, essentially through multiple sale deeds designed to get below the specified threshold, the scheme by any reckoning was a success. But it was withdrawn without so much as an explanation. The implication was, in a falling market, the government found it difficult to sell at profit the properties acquired in a pre-emptive purchase. One finds this difficult to stomach given the fact that real estate too is a cyclical business and the government can always bide its time. The measure ought to have been retained and the loopholes that came to light from time to time from the working of the scheme plugged.

Some people take comfort from a new scheme that was introduced hot on the abolition of the pre-emptive scheme — substituting the value fixed by stamp duty authorities in case the actual consideration falls short of the stamp duty value. The truth is, while the pre-emptive scheme targeted the dishonest, the new one, while setting out to catch the tax evader, looks at everyone with suspicion. Moreover, stamp duty authorities across the country have the dubious reputation of making high-pitched assessments for a variety of reasons, the more important ones being audit phobia and sadism.

The Budget 2006 proposal to abolish the economic criteria scheme is of a piece with the pussyfooting on the property front a few years ago. The one who can afford to bankroll a foreign travel can reasonably be expected to be having a taxable income. Which precisely was the reason he was called upon to file a return despite averring that he has none. With he showing up, as it were, the tax sleuths were expected to dig deep into his activities to ferret out the undisclosed income.

Ditto for the one enjoying himself at expensive clubs. It is ironical that the Finance Minister has backed off after having only last year added one more criterion to the scheme — consumption of electricity worth more than Rs 50,000 a year. If the scheme has not yielded any tangible results, the blame must be laid squarely at the doors of implementation or the lack of it. No worthwhile follow-up measure seems to have been taken. So much so, people covered by the scheme were quite blasé about it and filed the return thereunder with singular nonchalance.

Reeling under the mountain of papers thus created, the Department seems to have cried on the shoulders of the Finance Minister who seems to have sympathised and scrapped the scheme itself. What ought to have been scrapped was the invidious Banking Cash Transactions Tax (BCTT) which was introduced last year. Should the entire system be put to untold trouble to catch a few deviants such as what the Finance Minister mentioned in his Budget speech? For, every company — which is the most important segment of business in the organised sector that alone pays tax in this country — has to fork out a 0.1 per cent tax on every withdrawal of cash in excess of Rs 1 lakh.

Counselling companies not to withdraw cash and thus escape BCTT is a simplistic suggestion given the Indian realities. The least the Finance Minister could have done is to allow BCTT as a form of advance tax to be set off against actual tax liability.

Moreover, the tax unduly strains the banking system with no matching benefit. It is doubtful whether the Chandni Chowk fiasco would be replicated either through naiveté or brazenness on a large scale by the tax-evaders. At any rate, no measure, which imposes a burden on the honest, should be countenanced on the specious plea that they have to pay a price to help nab the dishonest.

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

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