#dnaEdit: India gearing up for new era in tax compliance

With the Income Disclosure Scheme (IDS), 2016, revealing undeclared incomes of Rs.65,250 crore by 64,275 persons, India is preparing for a new era in tax compliance. At the end of the four month window for disclosing undeclared incomes, the government is expected to earn nearly Rs.30,000 crore through a 45 per cent tax and penalty. An average of Rs.1 crore has been declared in income and assets putting an end to the whisper campaign that the IDS would end up targeting small traders. Those with Rs.1 crore in undeclared incomes can by no stretch of imagination be termed as “small” traders. In comparison, the Voluntary Disclosure of Income Scheme of 1997 netted Rs.9,760 crore in taxes at an average revealed income of Rs.7 lakh per person. However, the 1997 scheme did not have a penalty component and subsequently faced scathing criticism from the Comptroller and Auditor General for undervaluation of assets and creation of capital losses to adjust against incomes in future years. 

In recent years, the Income Tax department has moved to close avenues for black money generation and spending of unaccounted incomes by mandating that all bank accounts be tied to PAN numbers and PAN numbers be quoted for all cash transactions over Rs.2 lakh. In addition, all high value transactions are being tracked by regional offices of the I-T department. In July, it was reported that the IT department had sent out notices to seven lakh individuals to account for several high-value transactions in which PAN numbers were not quoted. Investigations by IT sleuths have helped detect over Rs.56,000 crore in undisclosed incomes. In the past, it was assumed that by not quoting PAN numbers the transactions would be able to evade the I-T dragnet. But aided by technology, information sharing with banks, and new data analytics tools, the I-T department has succeeded in widening its reach.

The introduction of the GST will also help the government tackle the black money generated through the retail business. Henceforth, profit and loss accounts and balance sheets of manufacturers and wholesale and retail traders will be shared with the IT department to correlate indirect and direct tax returns. With PAN numbers mandatory for registering all users of the GST network, transactions will be monitored better in future. The government has already sent out adequate feelers that those who did not use the provisions of the IDS to declare assets and incomes will come under the scanner. 

The effectiveness of the government in mopping up direct and indirect tax revenues is directly proportional to the revenue receipts with the government for welfare spending.

The estimated Rs.30,000 crore generated by IDS will help the government support schemes like the Rs.43,000 crore MGNREGA rural employment scheme which provides employment to nearly Rs.11 crore workers, who hail mostly from below poverty line households. Though there is criticism that the IDS allows an easy exit option for those who hoard black money, the government has now insulated itself from criticism that it did not allow businesses a fair chance to port to a more transparent operational regime. The new benami property and black money laws, and the amendments to the Foreign Exchange Management Act, which provides for the confiscation of domestic assets when undisclosed foreign assets are revealed, signify the seriousness of the government in cracking down on black money. Widening and deepening the tax base has become very important in the current context where private investment is flagging and the government is being forced to resort to increased public spending to finance welfare schemes, bankroll infrastructure projects and recapitalise banks.