Jaitley’s Babus Are Dragging Him Into Another Round Of Tax Terrorism

Beware the Ides of March, a soothsayer warns Julius Caesar in Shakespeare’s play. The warning went unheeded and proved fatal for Caesar. Indian taxpayers too should ‘Beware the Ides of March’ – and beyond. Not only because the financial year ends in March and you have to think of filing your tax returns, but also because the country’s taxmen start sharpening their knives to stick it into unwary taxpayers. Just as Brutus and Co were planning for Julius Caesar.

Almost as if on cue, The Economic Times filed a report yesterday (31 March) warning us that in the income-tax returns (ITRs) for 2015-16 (assessment year 2016-17), people earning more than Rs 50 lakh will have to give details of their net worth. In other words, you have to tell the taxman about everything you own – from financial investments to properties to gold to cars and other assets.

Last year, around this time, the taxman sprang a nasty surprise by bunging in a new ITR form that sought details about your foreign travel, the money you spent on each trip, the countries visited, the number of bank accounts you held (account numbers, branches, etc), details of long- and short-term capital gains made on trading, and earnings from agriculture, among other things.

The public outcry forced Arun Jaitley to avoid some of the most onerous details sought, but some of it remained.

This time, too, Jaitley’s tax hounds plan to ask you for details of your net worth, which promises to be another fishing expedition. The ET news report says a new schedule (AL) has been included in all ITR forms seeking details of all your assets and liabilities (loans still to be repaid).

In theory, the fact that only people earning more than Rs 50 lakh per annum will be targeted may sound reasonable, since it is about getting information on the relatively rich.

But in India, nothing is as simple as it seems. Even assuming there are only a few thousand ardh-crorepatis (Rs 50 lakh is half a crore), one can be sure Jaitley’s boys are opening another can of worms.

Consider the pitfalls and scope for new forms of tax terrorism.

#1: Valuation will be a nightmare. You may have bought a house 20 years ago at Rs 15 lakh and it may be worth a crore now; the ready reckoner may give you some other valuation. The taxman will presumably tell you how to value your house, but he can still question it since it is a part of your ITR. Be prepared for more calls from your ITO.

#2: The move will torment the honest more than the dishonest. The rogues will hold benami properties, or hoard gold and not declare them. The middle-class taxpayer will, presumably, dutifully report most of his assets. In the process, only the voluntarily declared assets will be used as a tool to assess if you are paying enough taxes. The crooks will be laughing all the way to the nearest pub.

#3: Assets means everything, including cars, bikes, etc. How will you value your five-year-old car? What if you still have an EMI going on it? Surely, there will be clarifications, but your calculator will be kept busy and you will need CAs to help you file IT returns that you could file on your own earlier.

#4: The volunteered information on assets and liabilities will not be protected by any law on privacy of data. What if the information leaks to the nearest branch of Dawood & Co? Or even the local goon out to get more donations for his Puja pandal? Remember the Radia tapes? The phones of Niira Radia, Ratan Tata’s media handler, were tapped (legally) by the income-tax department. But the tapes were leaked, which is why you saw so many red faces in media some years ago. Why does one assume that tax officers will not leak such information quietly, when no one will be held accountable for it? To this day we don’t know who leaked the Radia tapes to the media. Somebody could obviously access the tax department’s information easily.

#5: The only right way to go after tax evaders is to obtain income intelligence through forensic audits of publicly available material (bank cash flows, investments, properties owned) and then seek formal permission to examine all the financial details of people suspected of concealing income. Asking for all the information from everybody will mean unwelcome fishing expeditions involving only the honest.

Jaitley should know that India is not a safe place for the relatively rich. Their financial info is not leak-proof. The rule of law applies often in the breach. Hence, he should be careful about seeking such details from the honest.

In 2015, 4,000 Indian millionaires left the country (a dollar millionaire is someone with around Rs 7 crore of net worth). More will leave if Jaitley decides that his taxmen are going to poke their noses into people earning more than half a crore.

His tax babus are setting him up for another bout of tax terrorism on the relatively rich. And these are the kinds of people India needs to create wealth, jobs and intellectual property.