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The tax targets that kill

The tragic suicide of VG Siddhartha, the dynamic founder of Café Coffee Day, has once again brought the Income Tax Department (ITD) in focus and it has been at the receiving end of severe criticism. The last letter of VGS, which the ITD disputes in bad taste, was a kind of a dying declaration, that clearly mentions that his financial position got severely aggravated, after the ITD attached his shares twice, which suffocated his fund raising avenues and precipitated the fatal crisis on him. Liquidity ie. funds are the lifeline of a business. It is like oxygen supply to a body and just as a healthy body dies without oxygen, so is the case of a profitable running enterprise, without funds. VGS also pertinently mentions in his letter, that his assets were in excess of his liabilities. That raises a question as to why were his other assets like land, building etc. not attached, since doing so would not have handicapped his liquidity and business and why were his shares attached instead, knowingly fully well that doing so would only suffocate his fund raising sources and liquidity, causing immense and irreparable damage to him.

 

VGS had been subjected to income tax raids, which alleged tax evasion of a few hundred crores, which are reportedly in dispute by him, before appellate authorities. There are some undisputed historical facts here. The ITD tends to lose most of its cases in higher courts, such that such disputed tax demands are cancelled or diminished, particularly in the case of tax demands arising out of raids as VGS was facing. Such being the case, where is the justification for the ITD to do a hurried coercive recovery of disputed tax demands in the interim period, without waiting for the court judgements,  and in the process causing untold hardship, harm and stress to the hapless tax payer and his business. Few tax payers are able to bear this extreme recovery pressure, often resulting in their closure, or the worst as witnessed in the case of VGS. Why does the tax department instead not secure itself by attaching illiquid assets and restrain itself from forced recovery by sucking out funds towards disputed tax demands, while it waits for courts to decide the cases. Few persons can withstand the might of the Department, when it resorts to forcible recovery of disputed tax. And what does the ITD really achieve by initiating such harsh recovery actions that either decimate or close down enterprises, because common sense says that such closure is not in the interests of the Revenue itself, since only if entities run profitably, will they be liable to pay taxes, which is what the Department wants.

 

The root cause of this irrational and unreasonable action to us, lies in the fact that the ITD, which is a highly trained and professional body, with very capable and competent officers, has let itself be subsumed by its political masters, who set unreasonable, impractical and mindless tax collection targets, often with no connect whatsoever with our real economy. Tax collection targets are set by the neta FM, with no reality check with the state of the economy and are then forced upon the ITD to collect anyhow, with the threat that their promotion and postings will depend on meeting such targets. Interestingly, due to a slowdown in the economy, while the ITD was unable to meet its tax collection target last year, despite that and with a continued slowdown in the economy, the collection target has been increased by 20% this year, at a time when economic growth is forecasted to be 6.5% this year. If sector after sector is in stress today, whether it be automobiles to banks/NBFCs and real estate to telecom, and corporate profits are dipping across the board, then how will such tax collection targets be met by the ITD. And then to somehow meet such targets, apart from harsh recovery action, legitimate refunds of tax payers are withheld and ridiculous orders are often passed.

 

It is because of the unwillingness of the Department to object to and reject these very unrealistic tax collection targets foisted on them by the neta, that reckless and indiscriminate attachments and recovery takes place. The Department is at the receiving end today only for its failure to stand up and give a reality check of the state of the economy to the FM, in order to avoid baseless tax collection targets, which beget it severe criticism. The FM, promised in her budget speech that the elephant ie. the mighty tax department will not enter and destroy rice fields and will be satisfied with the rice that is offered to it. If she is sincere about this promise, then she must tone down the unrealistic tax collection targets for this year, otherwise the elephant will encroach the rice fields and enterprises and entrepreneurs will die.

Also Watch: Business Tit-Bits: V.G. Siddhartha Disappearance; Is the FM now worried?

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