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The Finance Ministry’s move to subject high networth taxpayers (HNIs) to intense year-round scrutiny is simply absurd. It should stop harassing those who duly file their income tax returns. The Government should drop the proposal to create a dedicated cell to monitor those who report earnings over Rs.1 crore per annum, spending more than Rs.10 crore a year or having assets in excess of Rs.100 crore. Instead of squeezing more from those who already file returns and pay taxes, the Department should go after those who remain outside the tax net. This is eminently feasible with rigorous analysis of annual information returns (AIR) that identify potential taxpayers by examining expenditure patterns. Today, the Department is behind the curve in mining information gathered through the tax information network (TIN). Audit trails break-up as the permanent account number (PAN) is found missing in several large financial transactions gathered through TIN. This is untenable. Every transaction should be tagged by a PAN and the unique identifier should be made mandatory for all those who make high-value purchases. A fool-proof PAN and robust TIN, not a dedicated cell for HNIs, will enable the Department to identify tax evaders. Selective focus on HNIs is a bad idea that would only duplicate work for the Department that already has a system in place to scrutinise income tax returns, selecting cases through the computer-assisted scrutiny system (CASS) that also captures information provided by banks, credit card companies, mutual funds through the AIR. A 360-degree profile of every taxpayer can be easily created with creative and intelligent use of information technology.
Last year, around 10,600 tax-filers reported annual incomes over Rs.1 crore. The number dropped to 1,257 for those with an yearly income of over Rs.5 crore. Hardly surprising, given that less than 3% of people file tax returns in India. The base of income tax should be widened to raise the level of tax collection to GDP. The best way to do that is to expand the coverage of AIR. Also, moderate income tax rates, simple and transparent tax laws will improve compliance and stop generation of black money.
