Saturday, January 16, 2016

Widening tax base

Income tax department is making a lot of news these days. It is also in the news as well, for various reasons. The department recently won the Prime Minister's award for "Excellence in Public Administration" for providing "Easy Tax Compliance through Quality Service". Tax Information Network (TIN), Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN) have been quoted and repeated all over the country. Its three-lettered three-word regime of TIN, TAN and PAN is now the property of every citizen, though crores of them do not own any properties of their own. The department has yesterday given wide publicity that Central Processing Center (CPC) at Bengaluru has been advised to issue refunds up to Rupees 50,000 expeditiously. It has even been advised to make refunds up to Rupees 5,000 without adjusting the arrears of tax payable by the assesses for earlier years.

The department has also published (this is done periodically) a long list of "Tax Defaulters" as a part of its "Naming and shaming" of large tax defaulters. The third list of 18 individuals shows that the aggregate tax default of these persons is over Rupees 1,100 crores. Naming has been done, but it does not appear to have shamed anyone. What was the response to the earlier two lists is anyone's guess. One funny thing about these lists is that several persons shown in the list do not even have a PAN (Permanent Account Number), but owe tax dues of scores of crores. Old meaning for the English word "score" is "twenty". But here the score is indeed pretty high.

The department is doing wonderfully well in tax collections. Whether the big fish or whales pay their taxes or not, tax collections are rising every year due to two wonderful instruments the department has in its hands. Tax Deducted at Source (TDS) and Service Tax are enough to show higher tax recovery year after year. Service tax collection was a mere 407 crore rupees in 1994, when it was introduced. Last year it had grown to an astounding figure of 2,15,973 crore rupees! What was earlier levied on only three items has now become all-pervading and is levied on everything except a small mention of items now placed on "Negative List". When you pay for something, whether you get service or not, you are certain to get "Service Tax". Some decades earlier, it was being mentioned that the prices of commodities never increases in the "Fair Price Shops", even though the items may never be available in those shops. Now it is true of service tax! 

Lakshmi was born in a village nearly four decades ago. She did not ask for that name, but nevertheless got it at her birth. She was not sent to any school and hence is illiterate. She cannot confidently say that she is illiterate now. Volunteers of "Saksharata Andolan" taught her how to write her name and included her name in the list of neo-literates, though her reading and writing is confined to wrongly writing her name. She got married when she was probably fourteen and was the mother of two sons when she reached eighteen years of age. Lakshmi migrated to the big city as her sick husband was unable to earn and support the family of four. She started working as a domestic help in two houses to supplement her family's income. Her capacity to earn had to expand with the increasing sickness of her husband. What started as a part time house maid's life graduated into full time occupation. She works in ten houses now and starts her work early in the morning. By the time she finishes her work in the last house, it is well past noon. The work involves sweeping and mopping the floors, cleaning and washing front yards of houses, washing the dishes and washing clothes in some houses. This cycle of sweeping, mopping and washing dishes repeats in each house. Despite this, her total monthly earnings are far below the exempted tax limit for individual assesses. She gets her wages in cash at each house as the concept of TDS or service tax has not yet expanded to the domestic help industry. She may have to wait for another year or two to achieve that distinction. She was happy in her own world and never thought that she would ever be required to have a PAN or think of a tax refund. Not in this life, at least.

Someone suggested to her husband that he should insure his life as he will be benefited by taking a policy in his name. The policy was duly taken due to the force exerted by one of the insurance agents. The husband now had the policy, but did not have the income to pay the premium amounts due on the policy. The agent told the family that the policy would lapse unless premium was paid regularly. She took upon herself to pay the same from her meagre earnings. It was difficult, but she paid the amounts promptly every month.

Her husband died due to sickness, leaving her behind to educate the two sons and manage their life along with her own. She filed a claim for the amount due on the policy, an amount of one lakh rupees. The insurance company asked for various medical records etc., and she did not know what records meant. After dozens of visits to the insurance office and several months later, someone there was kind to solve her case and settle the claim. Insurance company had a rule; claim amount will be sent only to a bank account. She was now required to open an account in a bank and attach a cancelled cheque to the claim form for receiving the money. The bank told her that she needed a KYC document for opening an account. She was now running behind the agents to get an "AADHAR" card and finally got one.  One kind lady helped her to open an account in a bank and get a cheque book.

She went to the insurance company with the pass book and cheque book. The Aadhar card and the bank account was in the name of Lakshmi. But the nominee in the policy was one Lakshamma. The common local practice of adding "Amma" with the name of a woman when she reaches middle age had caused the discrepancy. Yet another account was somehow opened in the name of Lakshamma and the claim amount was finally credited to that account. Another kind lady suggested that she should put the amount in fixed deposit as it will earn interest and prevent her from using up the money. She went to the bank and got a deposit receipt for six months period. She now had some documents; Aadhar card, bank passbooks, cheque books, fixed deposit receipt and a debit cards as well! She had no safe place to keep these items. Yet another kind lady agreed to keep them at her house, but at the risk and responsibility of Lakshamma. Lakshamma tried to get the "widow pension" sanctioned to her, available under the state government scheme. She was told that she was not eligible as she had two sons who can work and take care of her in her old age!

The deposit matured and she went to renew the same.  The amount shown for renewal was lower than the maturity amount mentioned on the fixed deposit receipt. When she asked for the reason, she was told that TDS was deducted and remitted to the government, as per rules. She said she did not know what TDS was. The bank staff blamed her for not understanding the rules for TDS and not giving the required form for waiver of the same. They did not care to suggest this to her even when they knew her status in life. Now she has been advised to obtain a PAN. She has applied for PAN. She will then have one more document to be handed over to the kind woman, for safekeeping at her risk and responsibility. She has to file a return after getting the PAN. She may have to digitally sign the return and submit on-line return. The department would then consider refunding the amount deducted as TDS.      

There is another case of Parvati, a well educated woman who served an organization for several years and sought voluntary retirement fifteen years ago. Her income level marginally crosses the minimum taxable amount. Bank deducts TDS on her pension and small amount of interest she gets and remits to the government. She files returns and gets refund every year. She suddenly received an e-mail last year that she was due more than 10,000 rupees of tax on a return filed five years ago. All refunds due since then are adjusted to this overdue amount. She is unable to meet someone and explain her case as now everything is to be done on-line and computers do not have a face and a heart. The department is overworked in publishing the list of naming and shaming scheme. She is resigned to her fate of losing the entire amount. The department's order of refunding up to 5,000 rupees without adjusting the amount to past dues does not benefit her.

Those who are due crores of rupees in tax arrears have become untraceable and vanished into thin air. Even if they are available, there is no progress in recovery of their dues. In a country of three crore taxpayers, 17 crore people have PAN. Many have been successful in obtaining multiple PAN to defeat the tax net. When the number of PAN holders increased by 175 percent, tax payers number increased by only 17 percent. Banks deduct TDS by default. Banks are helpless because the systems rule them; they do not rule the systems. It is the duty of the Lakshmis and Parvatis to know the rules, on-line working and digital filing. But, Lakshmi and Parvati can draw solace from the fact that have helped widen the tax base in the country. 

Lakshmi and Parvati are now in possession of valuable documents and proud tax payers. Lakshmi does not have a proper hut of her own but cannot vanish like those on the "naming and shaming" list. She can be found in any of the ten houses where she works each day. Big defaulters have the last laugh and the department will continue to win awards and accolades. 


  1. send a copy of this to the FM and PM . you have written beautifully.

  2. Quite thought provoking.

  3. PAIN(PAN)
    We middle class, lower middle class and under privileged people , we keep our hard earned money's savings in fixed deposit, we don't enjoy so that we get interest on that, then it is so painful to pay interest on that.
    Very good reality, narrated very well.

  4. Very sad stories. Thought-provoking and shocking blog post.

  5. Wonderfully written, as usual. The sad state of affairs in the administration of tax collection and how the middle and lower classes are always at the receiving end is brought out very well.

  6. Sir, I always read your column. You have a gift for discussing issues in truthful yet amusing ways. Your articles help me to realise that our problems are typical. Thank you for your thorough research.I appreciate your clearly written and thought provoking article.

  7. Very true story. ....!

  8. A very very true and practical case study on two extremes in (T)AXING. PAN BASE has been increased without increasing the TAX BASE. Now at least the awareness has been created about financial literacy, thanks to PMJDY among the marginalised sections of society.
    There is a long way to go see Lakshmies and Parvathies to become real Tax Payers, in true sense, not just PAN Card owners/holders.

  9. Sir ,amazing article .Immediately strikes chord in our heart as number of Lakshmi's abound in our society. Have brought out the difficulties faced by them in such a stark manner, brilliantly written