Rampant corruption in the income tax department may be the single biggest reason for the low conviction of tax dodgers, evaders and fraudsters. The campaign against black money and corruption notwithstanding, the infamous tax bureaucracy has thrived big time on convoluted tax laws subject to discretionary interpretation and an inadequate number of judges who have the specialisation to dealing with tax disputes. Given that judicial officers have not all been fully above board while delivering verdicts in these cases, the country has witnessed several income tax disputes that have been long winded.
The policy of leniency, commissions and omissions that prevailed as the norm till 2014 had also led to low convictions notwithstanding the fact that prosecution proceedings and fresh cases coming up before courts went up exponentially. Even during the first three years of the Narendra Modi government, streamlining of processes to deal with tax disputes seems to have happened at a snail’s pace. A combination of these factors has not allowed quick resolution of tax disputes. The efforts of successive finance ministers to scale down the number of tax disputes, realise tax demands pending for decades and refrain taxation authorities from filing fresh cases has not borne fruit.
Yashwant Sinha as finance minister in Atal Bihari Vajpayee’s government had drawn up a timeframe to resolve tax disputes, actively pursue prosecutions and convictions as well as realise revenue demands raised by IT officials. That initiative suffered a drag during UPA rule that was marked by policy paralysis and corrupt deals. A parallel exercise to bring in a more simplified Income Tax Act got entangled in corporate lobbying. Unless ambiguity in several provisions relating to income tax is removed, it will be difficult for the government to ensure tax compliance and convict tax dodgers. The Arbind Modi Committee set up by the Modi government must move swiftly in simplifying income tax laws, and reduce the scope for subjective interpretation and make compliance easy.
Tackling tax evasion and avoidance has been the biggest challenge for successive finance ministers with a large number of corporates hiding their taxable income. In what points to a massive under-reporting of income, out of the 13.94 lakh registered companies, only 5.97 lakh filed their returns for assessment year 2016-17. If official data is any indication, tax revenues locked in litigation has been on the rise over years. Domestic and multinational companies owe a staggering Rs 6,89,138 crore in various taxes. The largest number of disputes relate to corporate tax pegged at over Rs 4,71,489 crore sending ominous signals on the way the taxation department handled its mandate.
In this backdrop, it will not suffice if the finance minister limits his action plan to a timetable. Income tax Administrative Tribunals will have to be geared up to deal with an array of cases involving companies, individuals and consultancies. High Courts and Supreme Court will have to play a pivotal role in clearing the huge pile-up in tax disputes. There is no reason why the judiciary cannot train some of its best brains as taxation judges to resolve litigations. The judiciary in partnership with the government will have to evolve a policy towards dealing with tax evaders, dodgers and fraudsters who have used loopholes in the judicial system to prolong the cases. Modernisation of tax administration with a clear intent to get to the root of technology-driven economic and tax offences is a vital aspect of this campaign.