CBDT chief Sushil Chandra: We are better placed to nab tax evaders
Big data on financial behaviour of individuals and businesses secured from sources ranging from social network to tax treaties is making tax administration faceless and non-intrusive, yet precise in picking up cases warranting a long, hard look.
In an interview, Sushil Chandra, chairman of the Central Board of Direct Taxes (CBDT) spoke about how the overall approach to taxation is changing and how the authority is prepared to deal with corporations crossing the line in tax planning. Edited excerpts:
You have effectively addressed round-tripping, the practice of routing funds across markets to avoid taxes. What is your next biggest worry?
All persons, who are supposed to be paying taxes should pay taxes. Now we have a large information network and we are using sophisticated data analytics. Many salaried individuals whose taxes are deducted at source by employers do not file returns, which is wrong. Everyone should file returns.
There has been a drive to broaden the tax base and to curb generation of unaccounted wealth. What next?
We now have access to a large amount of data as a result of demonetization and compulsory reporting of specified financial transactions by various agencies. We also have better technology to match this data with the tax profiles of those who have filed returns as well as of those who have not.
That gives us a leverage to widen and to deepen the tax base. Our Project Insight that uses data analytics extensively is ready and will be launched shortly. We get information about transactions such as car and property purchase and a host of other financial transactions. If the data we get do not match with the tax profile of the assessee, it warrants a scrutiny.
We have identified 14,000 people who bought property worth more than Rs1 crore but have not filed tax returns. We are taking action against them. All investments are on our radar.
Tax evaders typically manage to stay one step ahead of the regulators. Do you think the balance is finally shifting in favour of the taxman?
Finally, we have got an edge over tax evaders. Earlier, people used to park funds abroad to avoid taxes. Now, we get a lot of information automatically from other countries under tax treaties. We match this information with the tax returns. We are now better placed to nab tax evaders.
Tax-evaded funds will either be invested, parked in banks or kept abroad. If we plug the loopholes in all these areas, definitely, we have an edge.
Tax treaties have been amended towards that goal. If we notice instances of gross tax avoidance and if it is found absolutely necessary, we can invoke the General Anti-Avoidance Rules (GAAR). We have adequate safeguards to prevent any misuse of GAAR.
Some are worried that the crackdown on black money may bring back the Inspector Raj. Your comment.
Scrutiny of returns is computer-assisted and we take up only those cases for scrutiny where we have specific information about tax evasion or where returns do not meet standard parameters. Less than one percent of all returns are picked up for scrutiny. Nearly half of all cases chosen for scrutiny are subjected to only limited scrutiny where explanations are sought on a specific transaction. Scrutiny has not gone up.
Rather, we would like to reduce it further and act only on specific information. We also allow e-assessment for limited scrutiny as part of making tax administration less intrusive, more focused and information-based. Our job is to ensure that honest taxpayers’ life is easier and hassle-free, while tax evaders should be brought to justice.
Therefore, there was an increase in enforcement action—searches and seizure—based on specific information during the demonetization period because of suspicious transactions. This government is committed to eradicate black money. Broad reforms as well as targeted steps have been taken towards that goal. Goods and services tax (GST) implementation will also add to the income tax base.
Now we get more than 98% of our returns online, including from those who are not required to file online. It shows taxpayers have faith in the system.
Going forward, do we see the corporate tax rate coming down from 30% to 25% for a larger section of the industry?
In the 2017-18 budget, we reduced the tax rate to 25% for micro, small and medium companies (with annual revenue of less than Rs50 crore a year). That covered 96% of companies in the country.
We are in the mode of phasing out more corporate tax exemptions. When there is higher tax buoyancy, the government will consider further tax rate cuts. (Tax collection is said to be buoyant when growth in tax receipts surpasses the economic growth rate.)
What about personal income tax rate?
In personal income tax, we have already reduced the rate to 5% (on income between Rs2.5-5 lakh). If you take into account the tax exemption limit of Rs2.5 lakh and the benefit of Rs1.5 lakh deduction under 80C (investments in provident fund, life insurance premium payments, etc.), income tax in India is the lowest in the world. The mindset of concealing income should change when tax rates are so low.
Tax exemption for farm income is one of the abused tax incentives. How do you deal with those who pose as farmers to evade tax?
We are selecting cases for scrutiny where disproportionately high agriculture income is shown.
What is the progress on the Panama Papers (documents leaked from a Panamanian law firm on offshore entities) investigation?
Around 30 searches have been conducted and some prosecutions have been launched so far in those cases.
We have also sought information from other countries in certain cases. As and when we receive that, we will take action. We can use only credible information from official channels to work on these cases. We are on the right track.
What is the broad direction we are taking in taxing the digital economy?
We already have an equalization levy on online advertising revenue earned in India by non-resident e-commerce companies. A committee is working on identifying more services that can be brought under this levy.