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Time for a tax amnesty scheme


My friend Arun is a rich man. In fact he is very rich. Estimates about his net worth are a subject matter of intense debate amongst his peers. When queried over a couple of drinks he has once confided to me that he was worth in excess of Rs 400 crores. Yet he does NOT belong to the special class of Indians who returned income in excess of Rs 10 lacs annually. It is surprising to note that only 70,000 Indians file incomes in excess of such a figure. Leave alone other assets, critiques repeatedly point out that more than 70,000 luxury cars are sold in India annually. Surely, there is something terribly wrong with out tax administration.

Coming back to Arun, over the years, one noticed a definite pattern in the manner in which he planned his business and tax affairs. All through the year, he would build up his wealth from a number of sources. One of his favorites was the method of receiving gifts on his marriage day, birthdays of his family members. Meticulously these were recorded in his books and substituted for his income. This game was too obvious to the department and last year the Finance Minister had sought to tax gifts except when made by close relatives. This partially plugged the loophole in the tax laws. Secondly, he maintained a number of tax files and sought to register his personal income through such files. Popularly called as benami transactions, the maze of debits and credits between the files ensured that the actual recipient as well as the income was concealed from the tax authorities. By this method, his domestic helps are reported to return income running into several lacs! Third and the simpler one was the age-old passion of man – tax evasion - plain and simple. This was usually achieved by settling major transactions through cash. It is no wonder that his CA thrives despite Arun being his only client. Arun has elevated the art of tax planning over the years into a perfect science of tax evasion. Despite in the know, the IT department remains a mute spectator to his brazen infraction of Law. Brought to its knees, the Government has repeatedly offered Arun and his ilk tax amnesty schemes. Game, Set and Match Arun.

Little realizing that this was Budget time; I visited him in the last week of February. His assistant informed me that he was busy in an important meeting with his accountants. Knowing my intimate connections with Arun, the assistant informed him of my arrival. Dignity personified, Arun immediately rushed out to receive me. “Hello Narada, welcome, welcome,” he said generously. As I entered into his room I was aghast to look into his table. Hundreds of files lay strewn across and there were a dozen people in the room. Reading the quizzical look in my face he added “busy with tax planning.” As is my wont, I innocently presumed that he was preparing for the year-end. After all the year was fast approaching its end and the last date for the payment of the final installment of advance tax was 15th of March. I asked him precisely that. Arun replied, “yes” with a tone of somebody being reminded of the smaller order of smalls and quipped, “more importantly the Budget is fast approaching and we in our group are preparing for the same”. I was surprised. After all the Budget proposals were for the next year. Not getting the hullabaloo of all this I remonstrated “Why are you beginning to tax-plan for the next year?” Putting his arm around my shoulder, Arun explained in a cold voice “It is over seven years since the Government came out with an amnesty scheme. By its own track record the Government is due for one this year. Being a complex issue it requires tremendous preparation. In fact we are working out the possible amount that I need to declare. Usually the problem with the amnesty scheme is that it does not give enough time to respond. So we are preparing through various simulated models. Nothing like being prepared you know.” I was shell-shocked. I am sure you too are.

Last modified on Sunday, 07 July 2013 07:36

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