New Delhi: The government on Sunday said it will investigate how some Indian Revenue Service (IRS) officials made public their proposals suggesting that scrutiny of tax filings be dropped for a year and the wealthy pay a higher tax, saying it was irresponsible and a violation of service rules.
The Central Board of Direct Taxes (CBDT) said in a statement that it never asked the IRS Association or the officers involved to prepare a report on policy measures to deal with the coronavirus crisis. “No permission was sought by the officers before going public with their personal views and suggestions on official matters, which is a violation of extant conduct rules. Necessary inquiry is being initiated in this matter,” the statement said. It also said that the report did not reflect the official views of the CBDT or the finance ministry in any manner.
The proposals made in the form of a detailed report, called Fiscal options and response to covid-19 epidemic, addressed to CBDT chairman P.C. Mody and other members proposed a ‘zero scrutiny year’ this fiscal. It also proposed slowing down tax searches and surveys in the current fiscal to provide relief to tax payers.
Finance ministry officials termed the report ‘ill conceived’ and ‘irresponsible’.
The report made a case for relief to taxpayers during the pandemic as well as revenue-raising measures, including an increase in taxes on the rich and steps to deal with evasion. The report forwarded to CBDT by an IRS Association functionary, urges the apex direct tax policymaking body to give relief to tax payers by slowing down surveys and searches this fiscal. It also proposes that the ‘super rich’—who have higher disposable income, have the luxury to work from home and have a greater stake in the economy’s turnaround—could contribute more to the exchequer.
“We can explore a ‘zero scrutiny year’ for the current fiscal year. This will be a bold step but this is required at this time of crisis,” said the report, a copy of which has been reviewed by Mint. The report also said that the income tax department “should go for minimum search and seizure operations in the current year, at least till 30 September 2020. A guidance note specifying the exceptional conditions wherein such an operation can be done must be released”. It also proposed that a few sectors such as education, health, agro-based industries and transport can be avoided for search and seizure operations in the short term.
A finance ministry official, who spoke on condition of anonymity, called the report’s suggestion for tax increase on the rich as ‘irresponsible’. The official said that neither the IRS Association nor any group of officers mentioned in the report were ever asked by the government to give any report on the subject. “It is prima-facie an act of indiscipline and violation of conduct rules which specifically prohibits officers to go to media with their personal views on official matters without taking prior sanction of the government. The chairman, CBDT, has been asked to seek explanation from these officers for writing such ‘ill-conceived views’ in public without having any authority to do so,” the official said.
A senior tax official who was until recently a functionary of the IRS Association said that this set of recommendations was given by young officers from 2015 batch onwards in response to CBDT’s request for suggestions from field officials, who have the ground experience with taxpayers. “The IRS Association is keen to encourage their efforts. The CBDT chairman will also get inputs from senior officials all over the country, which will be discussed with the finance minister,” said the official.
The call for scrutiny-free year and relief from searches and surveys is significant as industry leaders Kiran Mazumdar-Shaw and T.V. Mohandas Pai had last year complained of harassment by some tax officials, a charge that the tax department refutes.
To boost tax revenue, the report suggested that the financially well-off section of society has a higher obligation towards ensuring the larger public good. “In view of several European economists, taxing the wealthy would be the most ‘progressive fiscal tool’, as wealth is far more concentrated than income and consumption,” said the report. It recommended that for a limited period, the government could consider a 40% tax rate for income above ₹1 crore or reintroduce wealth tax for those with net wealth of ₹5 crore or more. “Administratively, the former will be simpler to implement. However, the revenue gain associated with both options should be worked out to see whether the gains attached with the latter option score better in terms of a cost-benefit analysis,” the report said.
Mint reported on 24 April that the tax department has kept up the heat on suspected tax evaders in FY20 with close to 900 searches till January, relying heavily on data captured from an increasingly digitized economy to profile assessees.
Information obtained from the finance ministry showed, that in FY20 till January, the department searched 893 groups, a tad lower than the 983 searches done in entire FY19. Mint had reported on 2 March that ‘surveys’ or enquiries made by tax officials, too, had jumped sharply from 4,428 in FY16 to 15,401 in FY19.
The IRS officers’ report recommended that predictability and certainty of tax regime was key to taxpayer welfare. The department must come out with a detailed plan of action and announce measures as soon as the lockdown ends so that the taxpayers are assured and can plan their operations accordingly, it said.