Indulging the evaders

S Murlidharan | Updated on January 21, 2020

Tax amnesty schemes seldom reform the crooks

Desperate to garner more revenue from direct taxes, the government is all set to place in the income-tax law a permanent tax amnesty scheme, which can also be construed as a revision of the existing revised-return mechanism. Under the existing revised-return dispensation, one can revise a return filed any time before the assessing officer completes the assessment or within one year from the end of the assessment year. It should, however, be used to correct genuine mistakes and not for disclosing previously-evaded income. The line between genuine mistakes and devious avoidance is often blurred. So much so, that the new dispensation perhaps seeks to make life easier for the assessees. And in that sense it is a ‘mongrel’ — a mix of a revised return and tax amnesty schemes.

The contours of the scheme, as garnered from the media reports, state that one would be able to revise returns going back 5-6 years (the exact number of years perhaps will be decided before the scheme is drafted), . The government hopes to garner at least ₹50,000 crore in the very first year (FY21) of the implementation of this scheme.

None of the past tax amnesty schemes have recorded any huge successes. The Wanchoo Committee observed that tax amnesty schemes indulged the crooks so much so that the same set of people repeatedly came forward to avail of the successive schemes despite the ‘last warning’ accompanying each scheme. In other words, such schemes were never taken as the reading of riot act by the government. Rather, crooks saw in them the opportunity to launder their ill-gotten income and wealth strictly to the extent it was necessary.

To wit, if one had ₹10,000 crore of unaccounted money and needed to immediately start a project with official sanction and permissions costing ₹1,000 crore, he thought it prudent to latch onto the amnesty bandwagon before him. The remaining ₹9,000 crore under his belt would continue to circulate in the subterranean economy unhindered. Far from being remorseful, therefore the crooks used such schemesto perpetuate their businesses.

Has the government already thrown in the towel even before waging a real fight? What happened to its resolve, to mop up the black money revealed by the audit trail left by the newly minted GST law? The GST by its very nature makes tax evasion difficult, unless everyone in the supply chain chooses to bypass the system.

Even otherwise, the sudden institutionalisation of a permanent amnesty scheme on the statute book under which one can get away with tax sans penalty is bound to raise eyebrows. It would be a tectonic shift in the assessment process. An assessment acquires finality subject to appeal. But the new scheme would keep the assessment process in a state of flux for the duration of the time till which one can revise his return.

In any case, asking a tax evader to pigeon-hole his ill-gotten income or wealth to five years behind is questionable. If one can be indulged for his recent tax foibles why not he be similarly indulged for his ancient foibles? There is no point quibbling over the antiquity of the tax-related crimes. It would open yet another vista for litigation, whereas the objective of any amnesty scheme is to smoke the peace-pipe with the evaders, though admittedly, that rightly raises the hackles of the scrupulous taxpayers and fiscal purists as well.

The writer is a Chennai-based chartered accountant

Published on January 21, 2020

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