The harassed taxpayer and tax man too

To state the very obvious, income tax is a tax on income and if and only if a person earns any income, can there arise a liability to pay tax. While income maybe a near certainty for salary earners and those earning rent and interest, it is not so in the case of those engaged in business, since the essential risk of business, is the likely absence of profits and its lure is the pursuit of profits, which can be elusive to any entrepreneur. Merely because an economy maybe growing at a fast pace, that does not guarantee profits to corporates. Take the case of the December ended third quarter of the current financial year, when the Indian economy grew by about 7%, but profits of corporates yet receded.

Uncertainty is the name of the game, as far as corporate/business profits is concerned, which should also in turn directly reflect on the tax collections for the year. While the past tax collection figures can be considered to be reliable pointers to the expected projected tax collections in a financial year, they are however no guarantors for it. Thus fixing iron clad tax collection targets to be collected at any cost is not correct and cannot be imposed by Delhi on the hapless tax payers as also on the field officers. If such targets are set up for budgetary estimates reasons, then the government must periodically review such targets on the basis of reported corporate results, sector indices and economic trends and if the targets are found to be mismatching with the actual state of affairs in the economy, then the government must be willing to revise its tax collection targets downwards, instead of forcing it on tax payers and resorting to the most unfair, unhealthy and coercive tax collection measures.

The unfortunate and ironical part is that the Income Tax Department has a culture/practice of setting up overambitious tax collection targets, at the beginning of the year, which they will not revise downwards, even if the state of the economy and corporate profits turn otherwise. In fact instead of revising targets to realistic levels, the Department is known to succumb to the directions of its political masters and revise the collection target upwards, as has happened this year, wholly contrary to and unmindful of the ground realities. Thus ambitious and unrealistic tax collection targets are set by the bosses in Delhi and the field officers are virtually bullied to meet them, with little chance of any realistic revision of targets. And the desperate officers in order to meet their targets resort to practices which are illegal at times and certainly not fair most of the time. It results in the creation of huge disputed tax demands, which even the Department knows that they will be struck down by the judiciary and coercive methods are yet resorted to for their recovery. Bank accounts are attached and so are business assets, if a tax payer is unable to pay the same, resulting in the decimation or closure of business entities. In doing so, the Department and its political bosses in Delhi forget the stark reality that only if a business survives and thrives will it be able to pay tax and not otherwise.

And further in order to meet such targets of tax collection, the Department withholds tax refunds of tens of thousands of crores, only to meet its collection targets and balance its statistics in a sham manner. At present over Rs.1.50 lac crores of tax payer money by way of income tax refunds is held back, only because the government is hell bent on meeting and doctoring its statistics of fiscal deficit and tax collection.

It is in line with this culture of meeting tax collection targets for the current FY, that a CBDT member has instructed the senior officers to take all possible action to recover tax, amidst a sharp shortfall in tax collections. The words ‘all possible action’ are ominous and are good enough to send a chill down the spine of tax payers. The reality is that the present tax collections are a reflection of the poor state of the real economy and if the ITD goes on a coercive onslaught, it will only kill the informal economy, still reeling under a brutal demonetisation and a hurried GST. It is time that this coercive culture of setting unrealistic tax targets and meeting them at any cost is reversed, or else the Department could soon be flogging dead horses.