Opprobrious tax amnesty schemes

Print edition : February 13, 1999
SUDHA MAHALINGAM

IF successful tax amnesty schemes are bad in principle and bad as a strategy, failed ones are even worse. Kar Vivad Samadhan Scheme, the successor to the Voluntary Disclosure of Income Scheme (VDIS), is remarkable for its failure to ensure respectable pickings even after its period of operation was extended by a month. Out of an estimated Rs.30,000 crores involved in disputes relating to direct and indirect taxes, Samadhan could coax no more than Rs.2,000 crores from the assessees.

There could be two explanations for this failure. Either the assessees believe that it is cheaper to bribe their way through than pay taxes even after the rates have been lowered and the interest on outstanding taxes has been waived, or they consider their grievance regarding tax claims genuine and therefore see no reason why they should pay up even at lower rates. Either way it is a poor reflection on the Income Tax Department's credibility and competence. The failure of the scheme has raised questions about how the department will deal with those who did not avail themselves of the scheme. Now that they have rejected Samadhan, what hope does the department have of realising the dues at the earlier rates, and that too with interest and possibly penalty, given the tardy and overburdened nature of the legal system?

The scheme itself is an admission of the failure of the department to make reasonably accurate assessments and enforce them effectively. Instead of tightening tax administration, the Government opted for the easy but dishonourable way out: it came up with a scheme that not only waived the interest on all outstanding dues but allowed assessees to pay their tax arrears at rates that are lower than normal rates and assured them immunity from prosecution. The scheme, which was announced during the presentation of last year's Budget by Finance Minister Yashwant Sinha, was to be operational from September 1 to December 31, 1998 but was extended up to January 31. The authorities had claimed that Samadhan would serve the twin purpose of reducing litigation and improving tax revenues. However, as things turned out, neither was served.

A Commissioner of Income Tax told Frontline that the scheme was violative of the right to equality under Article 14 of the Constitution and that there had been opposition to the scheme even from within the IT Department. This was because Samadhan was not available to all those who had arrears in dispute. It discriminated against a few categories of assessees. For instance, those who did not have pending arrears, but had paid up with or without protest even if they did not agree with the assessment, could not make use of the scheme. Samadhan was inequitous also because it allowed payments made before filing an appeal to be adjusted against tax dues, not interest dues. In many disputed cases where payments were in arrears for several years, interest dues nearly matched the tax dues or even exceeded them. Besides, the scheme treated persistent tax defaulters on a par with first-time defaulters resorting to litigation for perceived overassessment.

Sources in the IT Department say that the scheme was conceived primarily to bail out scamsters. Chalked out by a chartered accountant who held the ministerial portfolio at that time, the scheme was perceived to be beneficial to many politicians under the scrutiny of the tax administration, including All India Anna Dravida Munnetra Kazha-gam leader Jayalalitha, Rashtriya Janata Dal leader Laloo Prasad Yadav and some people accused of hawala deals. A senior income tax official said: "Politicians under the scrutiny of the enforcement authorities for alleged violations of the Prevention of Corruption Act or the Foreign Exchange Regulation Act were more likely to be convicted under the Income Tax Act, whose sweep is much greater. Therefore, a scheme like Sama-dhan was of great help in bailing them out." The official also believes that the scheme came into being more because of political compulsions than because of economic ones and that it offered as much scope for corruption as the silver scheme under the VDIS did, since it gave discretionary powers to officials.

THE Samman scheme is even more appalling than Samadhan. Samman seeks to reward honest tax payers. Ridiculous in concept and unethical in scope, this scheme is also violative of Article 14 inasmuch as it seeks to reward those who have paid a higher sum in taxes as against those who have paid a lower sum for the simple reason that they earned less and hence paid less as tax. Salary-earners from whom income tax is deducted at source are out of the purview of this scheme for the reason that despite promptly settling all their income tax dues, they would never match businessmen and self-employed professionals who earn much higher incomes. Also, those who pay high amounts as taxes need not necessarily be those who have paid all their dues. Yet, the Government wants to reward them. It has even said that it will not scrutinise the property transactions of those who qualify for Samman for three years. Worse, even those who have availed themselves of the VDIS are eligible for Samman.

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