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Analysis: Taxation Chakravyuh

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Why do people not want to pay taxes? Is it an escapist attitude, indifference or corporate or peer pressure? All these are complex themes in themselves. The fact is that no one in India wishes to pay taxes. The reasons are manifold, including but not limiting to the fact that the productivity of the taxes paid is not much visible. And yet, every year, the government announces budgets, with or without sops. This is the fruit loop that it wants individuals to eat and digest, whatever be the taste. One cherishes and awaits the budget for a new fruit in the shape of tax-saving schemes to be dropped. Our taste buds get so used to their taste that we want more such schemes, which we connive and plan to execute throughout a financial year.   Then we enter the next phase, the hula-hoop. Now that we have got used to the taste of various tax-saving schemes, we take the help of chartered accountants. After all, they are the ones who have been trusted to devolve the strategy of tax savings. They study the loopholes and then try to maximise non-payment of taxes. Not just this, market forces, too, contribute. The only rider is that every year you have to go around in circles with the hula-hoop of the tax avoidance regime. With this exercise, the belly is surely reduced of the tax that ought to have been paid. Is it possible to escape this tax regime? The answer is no, because this is a chakravyuh crafted by financial masters. Only a few know the escape route. In this light, we discuss the Delana India and tax avoidance. Not everyone wants to use the tax reduction hula-hoop. But it is almost impossible to escape the advertisements, the peer pressure, the chartered accountants' incitements and, above all, the finance ministry, which imposes so many indirect and direct taxes that one always looks forward to some relief. The tax deductions, etc., are really only a way to ensure that tax is paid. The real issue is that the entire ambit of the taxation regime is a farce. Every bit of one's life is taxed in one form or the other - income tax, property tax, road tax, scavenging tax, excise, customs, sales tax, service tax, and much more. This really puts off the common man as the overall development of the nation is being individually charged to him. The income tax, which is meant for the welfare of all, does not tend to come back by way of benefits to the individual. It is for this reason that governments in developed countries put the money to use by offering social security to individuals. In India, an individual has to fend for himself. While a government servant would get benefits of pension and healthcare on retirement, their number is very low. The individual has to rely on his own investments, savings and, of course, God's blessings. This is the rationale behind avoiding taxes and generating self-increments. It is also the reason why someone chooses to go for pirated software, knowing fully well the risks of prosecution if caught. In this context, ignorance of law is also writ large. The maxim says that everyone must know the law. But there are so many laws. In an organisation, one cannot say that the bosses are oblivious or can be oblivious to tax avoidance practices. But the immediate benefits and the probability of escaping penalties are much stronger than long-term penalty. In fact, many small scale-industries (SSIs) are designed for tax savings/avoidance purposes. While SSIs are exempt from sales tax and income tax in certain reserved areas, a large-scale or multinational company is not. Even though the benefits are for 10 years in certain zones with a view to uplift those zones and create work oppurtunities, the losses which ensue for a large company are incomparable. If the government woke up to this issue and fair competitiveness was monitored, such mishaps would not happen. And, the final question is: whether taxation is a penalty or a task? It is both. Taxation could, however, be beneficial and non-burdening if the government provides reciprocal well-being by way of security of life. The Constitution started with a preamble of being a 'socialist' but traversed to being 'capitalist'. Though the latter is good for growth, socialist norms, when moderately applied for the well-being of each citizen, would result in no tax avoidance as one's life would stand to be secured and not just penalised. This requires the government to send a message that would change 'Inspector Raj' to an 'understanding Raj'. We, as a nation of mixed cultures and religions, are supposed to know the scriptures, but not everyone has to know them. And yet, the basic tenets of each religion are followed by all. The same for taxation laws - that it is not necessary to know all the nitty-gritties of law, but suffices to know that there is an obligation thrust upon us, which we must follow. So, even if the government preached this to be a bounden obligation, things will turn around and the fundamental psychology of people would change. Ashish Bhagat, CEO of R.L. Bhagat & Associates, is a corporate lawyer and a special public prosecutor (This story was published in Businessworld Issue Dated 25-04-2011)