'Loitering with intent'

While everyone will welcome a review of the specific rate of the turnover tax, which Finance Minister P Chidambaram has promised, there are several other aspects of the Budget that also need a fresh look. Under the existing law, both the income tax as well as the penal code already have provisions for prosecuting people (chartered accountants/tax advisors) who "abet or induce" clients to produce fake documentation for tax avoidance (Section 278 of the Income Tax Act does precisely this).

What the Budget now proposes is to introduce a new section that arms the taxman with extraordinary sweeping powers of arrest that seem to violate basic civil rights procedures. Under the new provision, "it shall be sufficient ... to allege a general intent to enable the second person to evade any tax ... without specifying any particular instance or sum of tax, penalty or interest which has been or would have been evaded by such second person"!

Given that the most basic precept of natural justice puts the burden of proof on the prosecution, the new provision is surely violative of this principle. It's akin to the 19th century practice of policemen in the UK rounding up local bad characters for "loitering with intent".

One might even understand this where the taxman has managed to successfully prosecute tax payers for falsifying accounts, but is unable to prosecute their tax advisors/accountants; but there have been hardly any cases of successful prosecution of tax payers for account falsification so far.

Under Section 40(a), similarly, it is proposed that if TDS (tax deducted at source) is not deducted in time, the income for which the deduction was to be made will not be allowed for deduction as a business expense.

Take the case of a company that has a turnover of Rs 1 crore and a net income of Rs 10 lakh. Now let's say it fails (for whatever reason, and it could be plain oversight) to deduct Rs 20,000 as TDS on a payment of Rs 10 lakh to a supplier.

Under the proposed law, its net income doubles to Rs 20 lakh, and the income tax goes up by more than Rs 3.5 lakh. Why should the firm have to pay such a huge penalty when the maximum penalty for concealment is 300 per cent (in this case that would be Rs 20,000 multiplied by 3, or Rs 60,000)? This penalty by the way does not preclude other penalties in the form of payment of interest on the short-tax and prosecution. The provocation for such a draconian measure is hard to understand.

Other provisions reflect poor drafting. Section 285BA, which requires assessees to provide information on their purchases/expenditure during the year, may have some logic, given how many people buy high-value items but declare low incomes.

Yet, the wording has been left loose and the list of transactions open. The paperwork will be mind-numbing, the possibility of harassment always present because most people are simply not organised enough to remember everything they bought in a year, with the price details, and possibly the whole exercise will serve no useful purpose.

Then there is the provision on abolishing gift taxes that seek to tax receipts in the hands of the recipient (above the threshold of Rs 25,000) unless the money is from a specified set of relatives.

While the list of relatives does not exempt a gift from, say, your brother's daughter to your daughter, a way out is provided in the Budget itself""your brother's daughter can make a gift to her father (that's exempted), her father (your brother) can made a gift to you (also exempted), and you can then make it to your daughter (also exempted)!

Finally, it is typical of the shoddy home-work done by the finance ministry's babus for this very forgettable Budget that they have allowed the minister to claim in his speech that it was he who abolished the gift tax in 1997, when in fact it was Yashwant Sinha who did this in his first Budget in June 1998!