The Hindu Business Line : What's lacking in the `black' fight

MUCH before the Budget date, there were discussions both within and outside the Government on ways to check tax evasion and black money. Even an in-house committee of the income-tax department was constituted for this purpose.

The committee's report was given well before the Budget date, and it was hoped that the proposals therein would find a place in the Budget. But the Finance Minister has disappointed, approaching the whole issue as a mere formality.

In his Budget speech, Mr P. Chidambaram expressed concern about large cash transactions, especially those without any `ostensible purpose'. Hence, two anti-tax-evasion measures have been proposed: i) a tax on withdrawal of cash on a single day of over Rs 10,000 or more from banks at the rate of 0.1 per cent; and ii) banks to report to the Government all deposits whose interest have been exempt from TDS.

Unfortunately, both these measures are unlikely to make any dent on black money. They would only result in increased workload at all levels and hardship to a number of persons.

Cash economy cannot be avoided. This aspect has been recognised in Section 40A(3) of the I-T Act, 1961, which makes disallowance of expenditure equal to 10 per cent incurred in business exceeding Rs 20,000 otherwise than by a crossed cheque or a crossed bank draft. The object of this section is not to allow fictitious amounts as revenue expenditure, yet, through second proviso to this section, certain prescribed payments are permitted to be made in cash. Rule 6DD of the I-T Rules permits non-disallowance of payments exceeding Rs 20,000 in this Rule, which, inter alia, include payments to banks, LIC, IFCI, ICICI, agriculture, forest, horticulture, fish products, villagers, gratuity, and so on.

Obviously, a person will have to withdraw money from banks for making such payments which, in most cases, would be more than Rs 10,000 a day.

Why should a person withdrawing money for such needs be subjected to 0.1 per cent tax when the tax department itself recognises that cash payments in the aforesaid situations are imperative and cannot be avoided.

There are various other situations where cash payments are a must. Under wage payment laws, certain categories of employees, such as contract labour or factory workers, have to be paid in cash. Similarly, establishments purchasing agricultural produce for their business, such as sugarcanes, tea, coffee and other such products, have to pay to the sellers in cash only. Should they pay withdrawal tax when taking out money from the banks for making such payments? Obviously, in such cases, there is no justification as there is no alternative but to pay in cash.

Most hospitals insist on cash payments, especially in the case of emergencies. Again, in purchasing rail and airlines tickets cash payments are generally preferred.

Something which is conceptually sound need not be easy to implement. Citing the scene in countries where cheques are an accepted payment mode is no justification for introducing the transaction tax in India. Those countries have well-developed banking systems.

Information on black money and tax evasion can be obtained even without resorting to taxing bank withdrawals and demand drafts. Thus, more practical measures, such as barring the tax-evaders from holding public positions, directorships in companies and other important offices, may need to be adopted.

(The author is a former chairman of CBDT.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Easing ECBs

FTAs — adding to `spaghetti bowl of tariffs'

Guardians of our democracy

Progressing towards a flat tax?

What's lacking in the `black' fight

VAT of States

Telephone is no `capital good' if you manufacture H{-2}O{-2}

Wages of compliance is inequity

Behind the fig leaf of fringe benefit

New deal for rural India, powered by panchayats