OPINION: Government should issue detailed guidelines to label a tax evasion case liable for prosecution

This year’s union budget has a provision to prosecute those where there is an evasion of tax exceeding Rs. 50 lakh.  This has created a fear psychosis in the industrial sector.  Medium sector of industry has the feeling that some of the big corporate enjoying government’s confidences are immune to any wrong doing.  The recent report prepared by National Institute of Financial Management which is autonomous institution of the Finance Ministry has revealed the possibility of big tax evasion between 2004-05 and 2010-11 by the big corporate.  The institution has reached this conclusion after a detailed mathematical study.

Taxation is a civil regulation and does not warrant an arrest provision as pecuniary disincentives are sufficiently woven into the framework.  Criminal investigation process is exclusive followed by the experts in it and only prosecution experts can draw right conclusion.  If anybody is labeled as evader on first instance arrest can be made immediately and investigation proceedings would follow later.  Such prompt action is warranted in the case of customs where activities like smuggling warrant immediate arrest of the offenders.

It is interesting to note that in 1998 prosecution provisions were removed from the statute in the case of service tax as it was a new law then.  Even looking from this angle, the prosecution in the case of service tax is not justified given that the negative list has only been recently introduced in the year 2012.

Government should review this provision made in haste.  This is understandable as the financial condition of the government is very critical due to unsustainable current account deficit and fiscal deficit.  Unfortunately the criticality will be further increased due to the demoralizing effect of such a draconian provision on the entrepreneurs.  Only recently government made a blunder in the case of Vodafone and has to retrace but not before leaving a bad taste.

Country is running with a vulnerable economy mainly because our manufacturing is dwindling.  As a result our exports are suffering. 

We are one of the rare countries in the world where manufacturing GDP growth is less than the overall GDP growth of the country.  We are also unfortunate to be rare when share of manufacturing GDP in India at about 15% is on the very lower side in comparison with others.

Our economic woos do not end here.  Worldwide our ranking in almost all the aspects of running industry is very much on lower side in comparison with other comparable countries.  From this angle also we have to tailor our policies to create confidence in the entrepreneurs.

As regards the loss of government revenue government in itself does not mind loosing the same when it comes to the corporate sectors closer to the power that be.  Government is thinking to reduce MAT on SEZ’s although the performance of these SEZ’s is far from satisfactory.  They were supposed to boost the exports of the country but they have utterly failed in this regard.  For instance according to reports the exports from SEZ for the year 2011-12 was to the tune of Rs. 3.64 lac crores of which Rs. 2.62 lac crores came from manufacturing SEZ’s.  Interestingly 2/3 of this had come from reliance refinery and that too has partially de-notified because company wants to sell locally.  Had the revenue lost in giving tax exemptions to SEZ’s being used to small and medium sectors exports would have been much better?

Government is urged to issue detailed guidelines to label a tax evasion case liable for prosecution.  This process has to be slow so that no body suffers in the haste.  The present milieu of corruption certainly deserves patience.

(Disclaimer: The views expressed by the author in this article are his own and do not necessarily reflect the views of City Air News.)