Economic decline and tax collection

It has been widely reported that there is a major shortfall in direct tax collections in the last fiscal – actual shortfall could be in the region of Rs. 60,000 crores (PTI release 16.2.09). If anyone had followed last year’s high tax payers they were led from the front by banks with very high declared profits followed by various industry blue chips. This year the shoe is on the other foot, direct tax collections are down which directly points to the fact that recession has also hit India. Mr. Kamal Nath (Industries Minister) may digress so may the Finance Minister, but the tax collection speaks for itself!

Instead of accepting that there is a shortfall in collection due to recession, the Government has given instructions to the revenue arm to carry out surveys to increase the collection. We now have various revenue arms of the Central and State Governments calling on industry – like the Income Tax department, the Customs, the VAT authorities, etc. What happens in such cases? Does the Government gain anything? Nope…it is needless harassment of industry….you have an economic slowdown and to top it you have to manage various government agencies breathing down your throat for more taxes. How the hell do these jokers expect more taxes, when incomes are declining, top lines and bottom lines are affected big time! Beats me! But we still have various arms of the Government coming and snooping around in various offices to find out if they can get their pound of flesh!

When the Government agents do come calling, industry captains have no choice but to submit to their presence. The best one can do is co-operate with the officers and give them whatever information they want. Most of these surveys / raids start between 2 pm to 4 pm and continue well past mid night and sometimes can continue no-stop for two to three days. In this period the entire accounting and legal staff of the company under the scanner, are kept in the office, they are not allowed to do their normal work, computers cannot be touched, etc. The approach and attitude of most of these guys is that all companies are tax evaders and treat the staff in a hostile manner. It takes time for the façade on the officers faces to drop – only after interaction with the staff and after commencing checking of records, do they start to become slightly less officious. At the end of all the probing and taking copies of records etc. invariably a time for settlement comes.

No organization is 100% perfect, some mistakes, errors always happen specially in very large businesses, in the overall context this may be miniscule, but the officers just need a handle to beat you with. All one needs to do is keep ones cool and not panic. At the end of the day, what matters is whether the time and money spent on the raid has resulted into any benefit for the Government. If not, then there should be a mechanism in place to question the basis of undertaking the survey/raid activity. It should not so happen that the people involved in the raid, fill their pockets and go, and nothing accrues to the Government. I say this because this is India – everything is tradable – it happens in Parliament, so its not a surprise when such things happen down the politico-bureaucratic hierarchy.