Four pages of fear

All of this should help dam the rapidly thinning tributaries of tax evasion that the great Indian middle class resorts to: giving false rent receipts to claim HRA or going on imaginary holidays to far-out destinations to claim LTA, for instance. The attempt probably is to bring those whose salaries look like telephone numbers and live on cash reimbursements into the tax net, examine their incomes and expenses, figure out the differences and nail them on anomalies. The thrust, it seems, will be on high income earners with low outgoes. Their financial behaviour will be tracked, researched, scrutinised and if any serious difference between income and expenses come to notice, the interpretation of which inevitably remains the tax authorities’ prerogative, they will be penalised.

But against all these arguments for checking evasion are two problems. First, the unaccountability of taxmen. Only last month a salaried person paid the amount asked for by the taxman because he didn’t have the time to pursue the case, and which, if contested, would have dragged on for a decade or so, with the best-case scenario being the non-payment of the amount, even as the official would get on with his life, promotions, transfers and so on. The new form gives the taxman more discretion to “assess” relatively small income and therefore, usually by definition honest taxpayers. Who, for instance, will define “other outgoings”? To term Form 2F as being more convenient than Naya Saral (or Form 2E) is a salty travesty that the salaried can do without.

To bring sweetness into this irony, Form 2F is a boon for financial planners, who constantly try and match their clients’ budgets to help them manage their cash flows better. No amount of budgeting exercises, recording of expenses in thick registers for a couple of months to be discarded thereafter, can match the brute force of this form. Like it or not, the salaried will have to manage, track and record their expenses. I’m sure taxmen would not go as far as stalking after-shave lotions, football souvenirs or mangoes, but you can’t be faulted for fearing them when you read instruction 20 (vi), which demands the furnishing of “outgoings including for household expenses”.

At which point will recording of expenses be over? Will it be limited to the big outgoes like EMIs, electronic gadgets and white goods? Clarifications will follow, the restlessness of the salaried will be calmed down by that old argument: if you’re an honest taxpayer, you have nothing to fear. This is a truth that lives and dies with policies and forms and doesn’t apply when corrupt officials confront honest taxpayers. How much will the new form deliver? A percentage point or two increase? Even if those crumbs are granted, what I note with deep regret is the focus of governments on squeeze policies. That is, to try and get more and more out of the biggest existing pool of taxpayers, the salaried. These are people who even if they want can’t escape the tax dragnet except on the margins as defined above. And while there are no two arguments about controlling evasion, that the spotlight should be consistently directed towards the salaried shows a lack of will to confront either the big fish who evade through a thick mesh of money laundering global infrastructure or the relatively smaller ones, the traders, small businessmen, the humongous underbelly of real estate (I would estimate it to be a significant part of GDP) and so on. These people pay less than Rs 5,000 as taxes on incomes of over Rs 50 lakh — ask any chartered accountant who has to negotiate his fees within that 0.1 per cent.

It is this two-face approach to tax collection that hurts. Few of the 20 million salaried are intrinsically against paying taxes — they may grumble, they may protest, some may even evade. But the lowering of taxes over the years combined with rising incomes has taken the wind out of “why should I pay taxes?” argument. Their faith in justice gets injured when the sweet shop owner around the corner makes 10 times the money they do but pays less than a tenth as taxes, drives the latest models, builds serious property and bullion wealth (not financial, please note), and swaggers his way outside the tax network.

This leaves the salaried feeling cheated, helpless. Unlike large tax evaders, for whom the government has brought out one amnesty after another (legalising evaded income through VDIS or squatters through land grabbing bills) or less stringent stalking devices like Form 2D, this group of people gets loaded with not only taxes but micro-paperwork, nano-tracking, even as the big fish will restructure their banking behaviour (withdraw money to “show” expenses, for instance). Surely, there’s something intrinsically, philosophically wrong here.

gautam.cexpressindia.com