In 2005-2006, the income tax department is expected to garner Rs 176,812 crore (Rs 1,768.12 billion) and this would be the first time when direct tax collections will exceed the Customs and Central Excise tax collections. This is a turning point in India's fiscal history, and direct result of the country's tax reforms.
In percentage terms, India's direct tax collection in 2004-05 was slightly more than 4 per cent of the nation's GDP, but in 2005-06, it is expected to be more than 5 per cent of the GDP: a healthy sign of India's resolve to become a developed country.
Hari Om Tulsyan, 60, Chief Income Tax Commissioner of Mumbai, has served his department for more than three decades. He has also held top posts in Mumbai, New Delhi, Kanpur and Pune.
In an exclusive interview with rediff.com Managing Editor Sheela Bhatt, he said that the government's tax collection arm is becoming slimmer and fitter with help of computerisation and is ready to face the era of globalisation. Here are the excerpts:
In this era of globalisation, how are you (the I-T department) gearing up?
I have been in this department since 36 years. Obviously there have been lots of changes (over time). There are a few things that have changed tremendously. There are also a few things that don't seem to change.
There has been huge change so far as the computerisation of the department is concerned. Today, all the records that are filed are processed on computers. And the refunds are issued on computers. There was a time when a lot many people used to complain that they haven't got back their refunds. You had to speak to somebody so that refund could be issued. For that they had to extract the return out of turn.
There were problems in despatch too. There was a time when people used to complain that they have received empty envelopes. Now, all these are things of the past. Everything is now done on computers. A computer doesn't know any names. The system with the help of the computers checks and classifies everything.
The computer will process, in a serial order, tax returns filed on a particular day. The important thing is that the computer will process the return only after the tax returns of earlier dates are processed.
The computer does not and cannot discriminate. It also processes refunds only after processing the tax returns. Nobody has the power to issue refunds of earlier dates before the computer processes returns in a serial order. If a tax return is processed at a later date, refunds cannot be issued out of turn on an earlier date. Like, first, returns of June 14 have be processed before those filed on June 15; and accordingly refund will be given.
We have already tried it and from next year we will make it compulsory that the refund goes to your bank account directly from our office.
These are massive the changes that have taken place due to computerisation.
Now, when everything goes to the computer, then your data is also saved there. We are still maintaining physical records of your (taxpayers') records. This is very important to us. But we are carefully preserving computer data and it is not saved just in Mumbai. It is saved at the All India network of tax department.
People who are authorised can see the data anywhere in the country. However, everybody doesn't have access to this information.
All our officers have computers today. From this year, we are going to provide computer to every staff member of every officer. This is a massive change. The data Mumbai circle gets when returns are filed are enormous. No other government department gathers data like we do.
In Mumbai, we have 20-22 lakh (2.0-2.2 million) assesses. First step of our work is processing. All the tax returns that are filed are first stored into computers. Then, the computer processes this: meaning, the computer sees if the tax calculation of assessee is right or not, then it issues the demand notices if needed.
And, if refund has to be given, the computer issues refund notes. This data is permanently stored.
I-T computers are not stand-alone ones. They are attached to a national network and the entire data goes there.
Another big change is that now we don't have the General Index Number which we had it earlier.
As you know, now it is Permanent Account Number. PAN remains permanent throughout the life.
The system was planned such that there will not be any duplicate numbers. Wherever you go in country the number has to be same. PAN is given after certain basic data are provided. Person's name, his or her mother's name and birth date are important. We believe this information is such that it normally doesn't tally. Therefore, the computer cannot give the same number to two different persons. But being such a massive organisation, some duplication at some places might have taken place.
Suppose someone writes 'H B Private Limited' at one time and at some other time, he writes 'H B Pvt Ltd.' A computer will recognise them as two different persons and allot them two PAN numbers. There have been problems like this but they have been sorted out now.
You must be aware of the other change which is taking place regarding tax deducted at source (TDS) certificates. Now you don't have to file these certificates at all. The person who has deducted your tax has to give details about the tax deducted. We will keep it in the network. And when your return is processed, the computer itself will give you the advantage.
There were too many complaints earlier that the tax department is not maintaining certificates and is not giving due credit. Now you don't need to file these certificates at all. Of course, we are still in the process of implementing the system so there are some problems.
Three decades back, we used to collect direct tax worth around Rs 1,000 crore (Rs 10 billion) from all over India.
Now we have collected more than Rs 165,000 crore (Rs 1,650 billion). In Mumbai alone, we have collected around Rs 53,000 crore (Rs 530 billion).
Now, we have system in place where banks feed us the data and we get to know the total tax collection as and when we want. We are also in process of setting up a system where the computer will decide which are the accounts/returns that require deeper scrutiny.
The computer is so programmed that on basis of certain data it will respond. If a return is of a certain amount, it will refer it for scrutiny. If someone is showing losses of a certain amount, the computer will refer it to us. If some returns are showing investment of certain capital and if corresponding profit is below a certain amount, it will be selected.
The system is called Computer Assisted Selection of cases (CAS). There were allegations of bias and other considerations against us, but now the human element in the selection of cases for scrutiny is being reduced. However, we can still select cases physically, but that is at a minimum now.
What is most satisfying work you have done as the chief commissioner?
I am chief commissioner of Mumbai since the last two years and four months. I was also director general during this period. We have covered those areas of tax evasion, which were not covered earlier. It's quite satisfying to expand the tax network and earn more revenues for the country.
When I was director general we covered a case of a stockbroker who showed income of only Rs 10-15 crore (Rs 100-150 million). We did arduous homework and we carried out a search at the residence and offices of the firm's director. In one case alone he admitted income of about Rs 160 crore (Rs 1.60 billion)! It gives us satisfaction to get that kind of taxes.
He paid us that amount in two months. He was taking resort under certain legal provisions. We studied the system thoroughly. We understood how the share market is giving earnings to share brokers We did our homework and we got the understanding of how things work. Once, our senior officers were in this building for two days to get at the bottom of his working method. Only then we raided him.
What was that broker doing? How did he fudge his accounts?
We found out that although he was a stock broker he was also doing his own trading and making huge profits. He had floated around 20-22 companies. He was transferring his own profit out of his share trading to these 22 companies.
He also issued shares of his main company to these companies at a heavy premium. Like, he had issued Rs 10 share at Rs 90 or more to these companies. After transferring these shares at premium, he -- at a later stage -- bought back his shares at much a lower price to show losses in those companies.
This way his actual profit, which was transferred earlier, will not be taxed because these 22 companies will show losses on sale of shares. This was all done on paper. These 22 companies showed losses at the end of year so that his profit remained in the group without being taxed. It took us a very long time to break the mystery of his losses.
In the share market, there are many companies who are registered as public limited companies but they do hardly any business after inception. They are quoted at one or two rupees. Many people have identified such penny stock companies. They have purchased entire shareholding from the promoters.
Then, they identify people who are interested in conversion of number two money (black money) into number one (clean money). To begin with they will give the shares of penny stock companies at rock bottom price and then they will jack up the price of those penny shares in the market up to Rs 200 or more and then sell those penny shares for Rs 200.
In fact the purchase of these penny stock is by the same people who artificially jack up the prices. So the difference of Rs 2 and Rs 200 will be shown as profit.
Just before the last Budget, short-term capital gains tax was 10 per cent and there was no long-term capital gains tax. So this income of Rs 198 (Rs 200 - Rs 2) was either tax-free or had just 10 per cent tax. In some cases, they physically transferred shares much later, then dematted those shares and then sold them. We found that penny shares were dematted twice or thrice in the same year.
I am a strong supporter of the Securities Transaction Tax. The amount collected by way of STT is much more than the amount that could be collected by way of taxes. It's so easy! Transaction cost has gone up, but remember there is no long-term capital gains tax and only 10 per cent on short-term capital gains. STT has to be borne by traders.
What about internal changes in your tenure?
We have reduced internal competition between two directors. We are working as one team. There is no internal competition between two directors, eight additional directors or 24 deputy directors. We are all one directorate.
In India, the middle class feels that the income tax department is overlooking unaccounted for wealth around us. While ignoring poor and rich, your department is strict with only the middle class.
We are not against people who are flaunting money but we are against those who are flaunting money and not paying taxes. Middle income group is not happy with us because they do not know what all we do.
Besides the legal framework, we have carried out non-invasive surveys. Normally, in a survey, we go to find out certain information about the person. Non-invasive survey is carried out without focus on persons. We have carried out surveys in Mumbai where costly fountain pens, watches, acoustics, TV systems, costly bathroom fittings and many such luxurious items are sold.
Not one, but we have visited many places to do surveys. We have collected authentic information from schools where parents pay lakh of rupees as fees. And, then we have gone to those buyers who have purchased these exorbitantly priced things. In many cases it has resulted in revision of their income tax returns.
There is a feeling in society that we are not doing enough, but we have serious resources crunch too. No new appointment has been done in the last 3-4 years. We are short of everything. How do you tackle such a huge society where such a huge wealth is created with such limited resources?
Also, where so much huge social expenditure is incurred the tax department's inquiry or interference is never taken kindly. You would not like me to be at your children's wedding. There is too much expenditure in our way of life whose evidence is not there after the events.
What is not visible is not reflected in the accounts books. By the way, in India the highest taxpayers are public sector companies.
How do you see the tax culture of taxmen?
Nowhere in the world is the tax department a 'friendly department.' Tax collectors are feared. Corruption is ingrained in our society. It is not possible that there can be corruption everywhere and no corruption in tax department.
Since we have economic powers, charges of corruption are more against us. But a sea change has taken place in the administration. A lot of discriminatory powers of officers have been taken back. There is no control of officers on refunds and on processing of returns.
Automation has brought transparency in the system. The settlement of issues and cases is taking six months now; something that took 5 to 6 years earlier. Speed in the department has reduced corruption.
But perceptions take a longer time to erase. The culture of evasion of tax has also undergoing a sea change. When I joined the service, the tax rate was up to 97 per cent: along with wealth tax, it exceeded 100 per cent. Today, it is 33 per cent and people are coming forward and happily paying it.
People find it easier and economical to pay 33 per cent tax. Today, people are happy to comply with tax norms in India. We have changed.
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