The Hindu Business Line : Trust breakers

A recent news report confirms the worst fears economists and fiscal experts were harbouring but not very openly giving vent to. A visit to the registered office of a political party at Faridabad revealed that the premises also housed a detective agency, thus fuelling the suspicion that the party whose income is exempt from income-tax was just a fig leaf to earn tax-free professional income as well.

Through the simple expedient of diverting bulk of the professional fees to the political party, one can pull wool over the eyes of the taxman. Section 13A virtually exempts the entire income of the political parties registered under the Representation of People Act, 1951 from taxation. Experience shows that the regime of exemptions is the bane of this country.

Leg up to evasion

Income of charitable trusts is tax-free. So much so, bulk of the hospitals and educational institutions are run as trusts. It is another matter that some of the trust-run hospitals have been corporatised. That such trusts need not be marked by eleemosynary (something given for free) element — a position steadfastly taken by courts in India, including the apex court — in their operations has not helped matters. Instead, it has given a leg-up to tax evasion, preceded by mindless and merciless fleecing of customers (read students and patients).

The mushrooming of educational institutions across the country ironically promoted by illiterates more often than not is a direct manifestation of the consequence of such indulgence. Newspapers too are often promoted by trusts with an eye on tax exemption, what with purveying of information for public making the grade as charitable purpose on the rather liberal touchstone of the income-tax law as to what constitutes a charitable purpose.

A dispenser of patronage, therefore, finds it easy to collect his fees for such patronage in the form of advertisement in the newspaper he controls, thus killing two birds with one stone — collecting tax-free income and instantly laundering into legit money. The Government, which is wringing its hands helplessly in curbing tax evasion significantly, can easily remove these exemptions only if it has the political will.

There is no reason why trusts operating on business lines should enjoy tax exemption. There is no reason either why a political party or a so-called charitable trust cannot pay tax at the maximum marginal rate applicable to individuals, which is now the flat rate of taxation for firms and companies.

It is not as if hospitals and educational institutions would come to a standstill in its wake. Only men would be separated from the boys. And the tax thus collected would not be something to be scoffed at.

(The author is a New Delhi-based chartered accountant.)

More Stories on : Economic Offences | Politics | Income Tax | Reassessment

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