Arbitrary, Coercive Powers for Taxmen
Government must guard against a taxman raj
The component of tax revenue slated to go up the most is personal income tax. Annexure III to the Budget speech lists out a number of strong-arm measures that would presumably help the government achieve this goal. To prevent a backlash that would further discourage investment, the government must ensure that taxmen use their new powers with oversight and according to due process, and that their actions would be amenable to swift redress, should the need arise.
The Budget has proposed sweeping powers for taxmen to attach property, conduct searches, call for documents and determine fair market value of assets. This goes against the tenet of a non-adversarial tax regime, leading to uncertainty for individuals and businesses. Empowering tax officers to provisionally attach properties in search cases could coerce people into making declarations, before taking legal recourse. And that is unfair. Similarly, empowering junior officers to conduct inquiries and expanding the scope of searches to cover any activity done for a charitable purpose could mean roving inquiries. Tax officers will not be obliged either to disclose reasons for a search to an appellate tribunal, to maintain confidentiality. However, search and seizures are blunt, archaic tools of law enforcement, and bring back memories of a bad pre-reform past. Instead, the need is for intelligent data mining to create tax demands and with a solid proof of evasion and avoidance.
A modern tax administration should minimise the interface between the tax department and the taxpayer. Enforcement will entail some discretion, but safeguards must be in place to ensure that it is not used arbitrarily. This requires intensive training of tax officers, something that was recommended by the Parthasarathi Shome committee. The tax department should use big data analytics by either hiring such firms or using their techniques to mine information. The government should also swiftly adopt the goods and services tax that creates audit trails on value addition across the income and production chain to widen the tax base.