A friend with a business base in Singapore once got a call from the island-state’s tax authorities; they wanted to pay him a visit. Being an Indian, he was naturally alarmed at the prospect, so he got his assistant to say he was not in the office. The next day the call came again; among the thoughts that now crossed his mind was to catch the first flight out of Singapore, for fear of the local taxman. It eventually turned out to be a taxwoman, smartly dressed in a business suit and armed with a briefcase. After the initial introductions, they sat down and the lady told the businessman that the Singapore tax authorities were very happy with his record as a corporate citizen who paid his taxes. She had come to express the tax department’s appreciation. She then snapped open her briefcase, pulled out a Montblanc pen, reached across and offered it to the businessman as a gift from the tax authorities. “I could have fainted,” he recalled. She also left behind her business card; “Call me if you have any problems on taxes,” she said as a parting word.
That little story comes to mind when reading our revenue department’s warning to tax dodgers this week: pay up or else… Among the numbers put out: only 1.4 million people declared taxable income of more than Rs 10 lakh, but 5.2 million had investments in mutual funds, bonds and shares that suggested income of more than Rs 10 lakh. Another set of numbers tells us that a mere 400,000 taxpayers, with income of more than Rs 20 lakh, accounted for 63 per cent of income tax collected, though they were just 1.3 per cent of the 32 million who reported taxable income in 2011-12. By way of comparison, the top one per cent of taxpayers in the US account for less than 40 per cent of individual taxes collected. So if the honest component of our top taxpayers is doing more than its bit, why not show some appreciation? We underestimate how small businessmen can get bowled over if the tax authorities make a small gesture. As for those who shirk their taxpaying duties, it is difficult to understand why the tax authorities, with all the information that they now have on credit card spends, share investments and the like, still find it difficult to close the gap between 5.2 million and 1.4 million.
Look at another set of figures: 80 per cent of the tax collected comes in voluntarily, as TDS (tax deducted at source), advance tax or self-assessment. The tax collector has to simply count the money. The remaining 20 per cent comes in post-assessment, either as regular payment or as “other” payment. But here’s the thing: the refunds each year total up to 75 per cent of the money collected post-assessment. Besides, an average of more than 15 search warrants is issued every working day, but the assets seized per “raid” are no more than Rs 20 lakh. The total assets seized in a year equal Rs 900 crore — which amounts to barely one-fifth of one per cent of the tax collected, or about one rupee in every Rs 500. I dare say that many of the officers taking part in these raids make as much or more from the raids, and you know how. There may be some deterrent value to these raids, but many businesses factor it as a business risk and are prepared to pay off members of the raiding party; as part of the “settlement”, they also admit to a minimal amount of tax evaded, so that the raid is justified in the taxmen’s books. Hence the pathetic yield of Rs 20 lakh per raid. Montblanc pens might deliver better results.