Tax Extraction or Tax Terrorism?

WHEN TAX EVASION IS ENDEMIC, ZEALOUSNESS IN TAX EXTRACTION IS BOUND TO RANKLE. IS IT FAIR TO DUB IT ‘TAX TERRORISM’?

ACCORDING TO A 2019 PEW RESEARCH, two-thirds of Indians perceive corruption to be as big a problem as terrorism and crime, and rank it just below unemployment and rising prices. This fits in with the popular narrative. Corruption is easily our most popular topic of conversation. Wherever and whenever two or more Indians meet for a serious discussion on the nation’s ills, they invariably underline corruption as the main reason for our national plight. Paradoxically, the perceptions of corruption are so endemic that we no longer seem to attach any particular opprobrium to it. Indians are curiously ambivalent about the foibles of others.

We keep electing corrupt politicians and there is no particular social stigma attached to wealth accretion by dubious means. Take the case of two former Test cricket captains, South Africa’s Hansie Cronje and our own Mohammad Azharuddin. Cronje and Azharuddin were held guilty of match-fixing by their cricket boards, and banned for life in 2000. Cronje died in a plane crash in 2002, after his appeal for rehabilitation was turned down and despite being voted one of the greatest South Africans. Azharuddin, on the other hand, went on to get elected as a Congress MP in 2009, far away from his hometown Hyderabad, in distant Moradabad (in Uttar Pradesh), and has recently been elected president of the Hyderabad Cricket Association.

In his election campaigns, Prime Minister Narendra Modi likes to crow about his government’s attack on corruption. One of his favourite refrains, while campaigning for the Lok Sabha election, was: “In the past five years, I have brought them to jail doors; give me another five, they’ll be inside.” People gave him that and clearly there are high expectations on that count at least. With little to show in terms of job creation or economic growth, Modi has once again picked up his government’s exertions on “rooting out corruption” as his political theme.

There is a metronomic insistence that he will “not sit quiet until he brings back every penny of the people that was looted”. He has also tried to cash in on popular discontent with the rising inequality, by suggesting that the middle class has made a great contribution to the economy, but that much of the wealth has been cornered by a few with

TAX TERRORISM IS ALSO A POLITICAL INSTRUMENT TO DIRECT THE FLOW OF MONEY— TOWARDS SOME, AWAY FROM OTHERS

the help of corrupt politicians and bureaucrats.

In recent months, we have seen some very high-profile actions for alleged corruption by high-profile leaders such as P. Chidambaram, Sharad Pawar, Praful Patel, Robert Vadra, Akhilesh Yadav, among others. Without identifying them by name, Modi goes on to suggestively say: “Today, all these people are being held accountable, the people against whom no one had the courage to take action. Today, you are witnessing that from Delhi to Pune, the corrupt are facing action.”

But Modi would have been much more convincing if his government exhibited similar zeal in bringing to book members of his own party, like B.S. Yediyurappa, Shivraj Singh Chouhan, Himanta Biswa Sarma, the Reddy brothers of Bellary, Ramesh Pokhriyal, S.Y. Chaudhry, who face equally or more serious charges of malfeasance. The Rafale deal, too, it is suspected, involved a massive pay-off, given the unexplained price increase and the controversial involvement of Anil Ambani in the deal. But the Modi government has resolutely stonewalled any inquiry, using

the cloak of national security and a limited Supreme Court order.

Whatever the credentials of the Modi government in fighting corruption, and despite the selective nature of this drive, it is hard to sympathise with any of those being investigated. There should be no sympathy for those who steal or loot or cheat, and there is no denying corruption is commonplace. According to a 2018 survey by Transparency International and community social media network LocalCircles, 54 per cent of Indians admitted to having paid bribes for citizen services, directly or indirectly, in the past one year. This number stood at 45 per cent in the previous year, but even more worrying than the sharp increase is the fact that over a third believe that bribery is the only way to get things done in government.

In recent days, business leaders have been vocal about the so-called ‘tax terrorism’, a reference to the tax authorities’ increased zeal to collect what is due to the state. Surveys suggest tax evasion is endemic. For instance, it is believed that only one of 10 persons with incomes of Rs 50 lakh to Rs 5 crore actually filed returns. This, of course, is outright evasion, but underdeclaration of income is possibly even more rampant. With the government unable to step up capital expenditure, which has a direct bearing on job creation, and unable to raise the tax-to-GDP or capex-to-GDP ratios, there is an understandable urgency to do better. But is this ‘tax terrorism’?

WITH THE GOVERNMENT FORCED to seek harsher ways to extract its dues, it is not surprising that many feel the State is bearing down too hard. The suicide of Café Coffee Day founder V.G. Siddhartha is often cited as a consequence of tax terrorism. It may be that people have got so used to retaining for themselves what is due to the State, and have so often got away with large-scale evasion, that the renewed efforts of the tax authorities are being seen as tax terrorism. But that would be to misinterpret tax terrorism, which, in fact, manifests in the tendency to set higher and higher extraction rates for evasion. Income tax and GST officials have now begun to routinely issue notices demanding that their recipients present themselves at the office concerned or face penalties. These notices seem to have gone out in the hundreds of thousands, if not millions. With bank accounts now linked to PAN and Aadhaar, a majority of tax filings should be computer verified, taking discretion out of the hands of individual officials. What the tax authorities need to focus on is evasion, which, if surveys are to be believed, is more often than not outright evasion. This will require far more legwork than our tax bureaucrats are used to, hence the vexatious tendency to be arbitrary in dealing with assessees.

Even so, is it fair to dub this pursuit of assessees ‘tax terrorism’? When tax evasion is endemic, zealousness in extraction is bound to rankle. But it is when the pursuit is partisan to boot that the tax terrorism charge begins to stick. Unfortunately, the Modi government has not made a convincing case about the non-partisan character of its efforts to bring the corrupt to book.

The biggest or possibly the only source of funding for political parties is giveaways from tycoons, small businessmen and petty contractors, who expect to earn goodwill and favours in return. The vast majority of top businesses or newly minted wealthy owe their rise in large measure to benefits bestowed by the State, which controls most of what a businessman needs to grow. From telecom to oil to coal to steel to all infrastructure, and to airlines, the State has a decisive say in determining success. That is why money flows to politicians and opinion-makers.

According to a report, titled ‘Poll Expenditure: The 2019 Elections’, by independent think-tank Centre for Media Studies (CMS), political parties spent a staggering Rs 55,000-60,000 crore in the 2019 Lok Sabha election. At nearly double the Rs 30,000 crore estimated to have been spent in the previous general election (2014), this implies an expense of Rs 700 for every vote cast in 2019. The BJP accounted for about 45 per cent of the total amount spent in 2019, compared with 20 per cent in 1998. On the other hand, the Congress, which had spent 40 per cent of the total poll expenditure in 2009, when it was in power, spent about 15-20 per cent in 2019.

This money is coming from somewhere, and presumably for a good reason. For politics, money is like mother’s milk. Tax terrorism, then, is also an instrument to direct that flow—towards some, away from others. But as long as there is widespread tax evasion and a sense of entitlement to evade, there will be unwarranted perceptions of tax terrorism as well.

MOHAN GURUSWAMY is chairman and founder, Centre for Policy Alternatives

WITH THE GOVT FORCED TO SEEK HARSHER WAYS TO EXTRACT ITS DUES, IT IS NOT SURPRISING THAT MANY FEEL THE STATE IS BEARING DOWN TOO HARD