Our economy is perceived to be afflicted with black money. Many reports and commissions have supported this view in the past. It is said that for 70 years, it has been so and because of this, the emancipation of the poor and down-trodden has been lagging. It is often felt that black money is born out of tax evasion.
It is also said that corruption has been corroding us for several years now which, in the interest of promoting development, is required to be immediately obliterated.
Then there is the problem of counterfeit currency. That has been found to be utilised to fund terrorism and other anti-national activities and also to spread social unrest.
A single solution for all these ills was announced on the evening of 8 November 2016. High denomination currency notes of Rs 1,000 and Rs 500 notes were identified as the cause of all the maladies. And so it was that from the midnight of that day, they ceased to be legal tender.
A dispassionate analysis would have revealed as was stated by one politician that the money that is called “black” is indeed not all that black. Black money is not always the product of tax evasion. Take for instance an individual who does not pay correct tax. But when that very errant individual expends that money, say in buying petrol, he defrays a good chunk of it for tax which is unseen and indirect. Such a contribution to indirect tax once again channels that stained money into economic cycle. There are any number of instances where what is black at one stage gets to be white at the next. This abstract concept is not absolute.
Corruption in society is not solely out of black money. It is generated because societal laws and conduct rules are not proficient enough. Room for discretion in application, allotment and approval is the hot-bed for corruption. None have identified this malady more correctly than one former minister who had famously remarked that not only the regulations must go, but the regulators must go. That is music to informed ears.
Replacement of counterfeit currency ought not to have commanded such a degree of trepidation and alarm. Remember how quietly and swiftly Rajan replaced the undated Rs 1,000 and Rs 500 notes.
The churning process now under way has put all and sundry in a quandary. A Rs 500 note had not much purchasing power left in it due to the spiralling inflation over the years. It has been common place currency. A daily wage earner has to be paid at least that. Its withdrawal from circulation has spelled havoc. The daily queues outside banks and ATMs and the return thereafter by a sizeable number without success, the colossal loss of man-hours expended for exchange of old notes, the arbitrary and high-handed behaviour of the bank staff in the face of the unending shortage of new currency notes and the numerous other imponderable difficulties have sapped the happiness which the announcement initially generated. Most now say that the whole scheme is mis-conceived and ill-executed.
The latest thought in the ruling circle now seems to be that the ownership of the banned currency notes is mainly due to tax evasion exercises and corruption. There is no gain saying the fact that evasion being pernicious deserves to be punished. Like-wise corruption being carcinogenic needs to be eradicated.
Responsible people in government have thought it necessary to threaten and warn. A new law is being conceived with a view to replace the existing one so as to make the exorcising of the evil both biting and cutting.
Speaking of the nature and qualities of law in general, the great American Jurist Justice Brandies warned in a judgement around 90 years ago that “our government is the potent, the omnipresent teacher. For good or ill, it teaches the whole people by its example…. If the government becomes a law breaker, it breeds contempt for law; it invites everyman to become a law unto himself; it invites anarchy”. Nothing could apply more aptly to the contemporary situation.
The Income-tax Act as it stands today provides for tax at the maximum marginal rate if the explanation tendered with regard to a certain category of income is found unsatisfactory by the Assessing Authority. The punishment is by way of denial of the application of general taxation rates. The Act further provides for a compromise for the application of that rate without further penalty if acceded to in a prescribed time frame. Besides that, there are a plethora of provisions, which provide for a presumptive tax without books subject to specified limits. The hallowed principal that laws as existing on the stature ought to hold sway on events and incidents arising during their tenure is now sought to be undone. All that and more are now proposed to set to a nought through some novel proposals qua the Taxation Laws (Second Amendment) Bill, 2016.
Briefly put, the bill seeks to tax income declared through the medium of demonetised notes around 50% with a further rider for detention of 25% for four years of the declared amount to be used for the amelioration of the poor. One is tempted to ask as to whom the 50% is for.
An aberration is provided to be punished with crippling effect, inclusive of a prospective incarceration. It is little realised that tougher the language of the law, more lax is its administration. No wonder in a scheme of law as proposed running into just six pages, there are as many 10 errors.
The filter to separate legitimate and regular income as settled and earned through the demonetised ones from the others which are tainted is left to the discretion of the administrators. The propensity for torture and torment by those responsible for administration is too well known to require any elucidation here. Perhaps too soon, the government has forgotten what its head had stated from the ramparts of the Red Fort in 15 August last.
Any measure with potency for promoting corruption has to be severely eschewed. Corruption is near impossible ordinarily to detect or expose. That is so not only because it is secretive and is done in closed chambers, but also because both the giver and receiver are equally guilty if brought to book. And so it is that both the giver and taker would rather gainfully bury the truth rather than ever reveal it. The proclamation to bar it may sound brave, but it will have little or no substance. The only way to obliterate it would be to make the rules more simple and easy. A most important constituent in this would be the enforcement of accountability.
The shift as proposed in the method of taxation hardly has any rings of morality or ethics. Another great American Jurist Justice Clark had warned over five decades ago that “nothing could destroy the Government more quickly than its failure to observe its own laws”. The current attempt to alter the law to make it harsher does not auger well from any angle.
The status of the governments’ revenue administration ought never to be compromised, no matter how serious the challenge may be. Explaining the term “prejudicial to the interest of the revenue”, the great jurist Balasubramanium, J pointed out that it ought not to be construed in a petty-fogging manner but must be given a dignified construction. The Ld. Judge pointed that the term “revenue” denoted some kind of abstraction and symbol in the same sense in which the expression “crown” is used to distinguish it with any person enthroned. The interest of the revenue could not be equated with rupees or paise only. Alluding to a biblical saying, he pointed out that we do not live by bread alone. Thus, any law which is devised ought to be in keeping with the status and dignity of the “sovereign”. Just for the fact that the subject has erred, the “sovereign” cannot stoop to that level by way of retribution to provide punishment. The sovereign is respected because it keeps its dignity high.
India must keep pa
ce with the international styles and concepts. The craze for digitisation is not without justification. To usher that in, there has to be some basic preparation. Education level of the masses has to be raised first. The aged, the infirm and the not so well educated have also to be included in the movement. That will naturally take time. To do so abruptly and importunately would retard the very pace of development.
The business in real estate and jewellery is presently under severe strain for the over five years now. The new measures taken now have crippled retail business. In situations where trust is imperative, it is cash transfer that serves best. The huge backlog and pendency of criminal cases u/s 138 of the Cr. P.C. in the numerous courts in the country only assert the need for a credible, dispute-free cash settlement system. A tax can enure only if there is a profit and for a profit to be generated, there has to be successfully concluded transactions.
Social changes take their own time. If one is to live in a society without rancour and bitterness, it becomes essential to tune oneself to social needs and styles. All this should be well known to the powers that be. To assume otherwise would be naive. The need of the hour is both patience and perseverance. History teaches that drastic changes are hurtful. So let us bid the good times and abide with the law as it stands. Any new law at this stage would only be counter-productive and self-defeating.
K. Sampath is a practicing tax advocate and ex-President and Patron of the ITAT Bar Association.