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Several captains of industry have complained to the Government that taxmen are harassing India Inc. Harassment is unacceptable and must be halted. Raids and searches that have been rampant this year are blunt and opaque instruments of tax collection. The lack of transparency raises questions on the intent of such operations. Agreed, the Government is desperate to raise revenues in a slowing economy, but that is no justification for indiscriminate raids on businessmen. A system is already in place to scrutinise tax returns of companies and individuals by selecting cases through the computer-assisted scrutiny system. CASS should be strengthened as it minimises interface with taxpayers.
The point is for taxmen to make intelligent and creative use of technology to establish audit trails of transactions. This is eminently feasible if every financial transaction is dovetailed to the permanent account number (PAN), the tax department’s unique identifier. A foolproof PAN and an efficient tax information network will help track evaders and stem black money generation. What is truly troubling about these raids is that they bring back memories of an ugly, pre-reform past, when extraction of tribute through use of the state’s coercive powers was a standard procedure of mobilising political funding, with considerable amounts sticking to those who collect, before the tribute reaches party coffers. Economic reform and modern tax administration should bring such practices to an end. Lingering suspicion on what precisely motivates the state’s coercive machinery to descend on businessmen can be wholly removed only when a system of transparent funding of politics is instituted. Creating this is as important as creating and operating a modern tax information network married to intelligent analytics.
In parallel, the Government should widen the tax base, implement the proposed goods and services tax, correlate, if not unify, the databases of direct and indirect tax payment, lower rates and simplify laws and procedure. This is the best way to improve compliance and raise collections. Let raids and searches join the 97% tax rate.
