Col­lect Tax But Don’t Ter­rorise Tax­pay­ers

The Economic Times - - The Edit Page -

The in­come-tax depart­ment has re­port­edly asked more than 18 lakh peo­ple to give in­for­ma­tion on the source of de­posits, post de­mon­eti­sa­tion, of .₹ 500 and .₹ 1,000 notes. Post­ing po­lite let­ters of in­quiry, based on in­for­ma­tion shared by banks, might seem in­nocu­ous — to a new ar­rival from Mars. To those used to the ways of the I-T depart­ment, it is an omi­nous mis­sive, whose fol­low-through, if not nec­es­sar­ily its de­noue­ment, could prove har­row­ing.

Ap­par­ently, for­mal no­tices will fol­low for those who have no con­vinc­ing ex­pla­na­tions. In­stead of scor­ing a large self-goal by way of need­less un­pop­u­lar­ity, the govern­ment could wait for peo­ple to dis­close the source of their cash de­posits when they file their in­come-tax re­turns later this year. So, the tax re­turn form should be re­designed to ac­com­mo­date a spe­cial sched­ule for dis­clo­sures on cash de­posits made be­tween Novem­ber 8 and De­cem­ber 30 last year. Pre­lim­i­nary govern­ment data shows an av­er­age de­posit size of .₹ 5.03 lakh in1.09 crore ac­counts. About five crore tax re­turns are filed, but less than1% are taken up for scru­tiny. Given that de­mon­eti­sa­tion was a one-off ex­er­cise, the tax depart­ment can al­ways take up more cases for com­puter-as­sisted scru­tiny this year.

Ac­tion must be taken to fight tax eva­sion, in­dis­putably. But strong-arm mea­sures will be coun­ter­pro­duc­tive, and the need is for the depart­ment to min­imise in­ter­face with the tax­payer. A mod­ern tax ad­min­is­tra­tion calls for in­tel­li­gent use of tech­nol­ogy and use of big data to track evaders. Al­ready, the annual in­for­ma­tion re­turns, filed by third par­ties that in­clude banks, take the depart­ment half the way there. The depart­ment should walk the re­main­ing dis­tance, not force po­ten­tial tax­pay­ers to run scared.

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