New Delhi: Finance Minister Nirmala Sitharaman on Wednesday asked taxmen to firmly deal with those who try to evade taxes and game the system, while at the same time act as facilitators to honest taxpayers. While she stressed that taxpayers should treat tax payment as a contribution towards nation-building and not as a punishment, the minister asked three investigating wings of the revenue department to share information among themselves to nab evaders.
Addressing officers at the Income Tax Day celebration here, Sitharaman said that efforts should be made to increase the tax base from 8 crore currently as desired by Prime Minister Narendra Modi. She said that the direct tax collection target of Rs 13.35 lakh crore for 2019-20 set in Budget was achievable, as the tax department has doubled the collection in the last five years. “… Those gaming the system are the ones you (taxmen) have to keep a watch on… data mining, big data usage are all instruments in your hand to understand where the wrongdoing is happening and I am with you if you are firm on those people. I am fully with you if you are really firm on gaming,” she said.
Sitharaman said if the assessees were not avoiding and evading taxes, then the taxmen owed the assessees good service. “If avoidance and evasion are two things in your mind, ‘a’ and ‘e’, of the 5 vowels, … then the other 3 letters comes into play — ‘i’, ‘o’, ‘u’. No avoidance and evasion, then you owe the assessee a good service, facilitation,” she said.
[pullquote]’We are not punishing those who are earning, we need tax because we want to have greater, better, … income or resource distribution'[/pullquote]
The finance minister said the three enforcement wings of the revenue department — the Income Tax, the Enforcement Directorate and Directorate of Revenue Intelligence — should share the information about assessees base and profile of assessee for better coordination in an investigation. “If only these three (wings) shared the information about an assessee, you would have no businesses but to send an electronic claim, money is going to reach you. The whole business is about trust with the person who is paying the tax, who is helping build the country, and you are facilitating the process. It should strictly be as simple as that.
“It’s about having the right information about people and better trust between you and assessee. And if only that kind of understanding exists between the assessee and you, there is no need to put in extra effort to address issues of avoidance and evasion,” Sitharaman said.
Explaining the rationale for higher taxes being imposed on individuals who earn more, the minister said tax is not collected as a punishment, but with the intent that those who earn a lot if they can contribute more towards nation-building. “We are not punishing those who are earning, we need tax because we want to have greater, better, … income or resource distribution,” she explained. “The nation takes that tax more because we want to redistribute it for people who have not been so able to make that kind of an earning for themselves,” she said further.
[pullquote]Sitharaman invoked Chanakya’s Nitishastra as she equated tax officials to honey bees which extract nectar from flowers without hurting them[/pullquote]
The larger principle of taxation is that the government is not here to bring in something which is going to be too much on the shoulder the rich, the minister said. “Yes, we need that money… Would you help us to redistribute some (higher earning) for those who are less fortunate? So if that broader spirit is understood, the income tax officers will not be looked at as: ‘Oh my God, I don’t want anybody from the department come near me’,” she said.
In 2019-20 Budget, the government had increased surcharge from 15% to 25% on those with taxable income between Rs 2-5 crore and from 15% to 37% for income above Rs 5 crore. Following the increase, the effective income tax rate for individuals with a taxable income of Rs 2-5 crore will go up from 35.88% to 39% and for those above Rs 5 crore it would go up to 42.7%.
Sitharaman asked the tax officials further to be sensitive, despite on a regular basis, dealing with people who are avoiding paying taxes and are gaming the system.
Sitharaman said the Budget 2019-20 has set a “very easy target” of direct tax collection in current fiscal. “If in the last five years, you could double, what we have given you this year is nothing at all. So somewhere between Rs 11.8 lakh crore to slightly over Rs 13 lakh crore is no big deal at all. You have not been given a big target… The target given to the direct taxation people are imminently achievable, we are all here to facilitate it and with that, next year we can all sit and have a higher target,” she said.
Sitharaman invoked Chanakya’s Nitishastra as she equated tax officials to honey bees which extract nectar from flowers without hurting them. She said that every morning she forwards grievances of taxpayers from her social media handle to the Revenue Secretary for corrective action, where required. She said that while the department cannot be run solely on the basis of social media feedback, the platform does help in understanding the opinion at the ground level. “We need not be averse to it. It helps us tweak our functioning a little bit here and there,” she said.
The logic Sitharaman used has been criticised globally
According to Allin Cottrell, Paul Cockshott and Greg Michaelson’s Is Economic Planning Hypercomputational? The Argument from Cantor Diagonalisation, International Journal of Unconventional Computing, as any Universal Turing machine can do what any other Turing machine can, a central calculator in principle has no advantage over a system of dispersed calculators (i.e., a market), or vice versa.
Justine Murray writes for Mises Institute, “The hour spent at the bakery making the bread is an hour that is lost to someone else getting in line before them to get the bread. So the baker has to choose between either contributing materially to society or giving up this productivity to avoid losing out on resource distribution. The more individuals that drop out of productive activity increases the amount of time required to obtain even scarcer goods, further convincing more individuals to drop out of the factory and stand in distribution lines. This cycle eventually leads to total economic collapse…”
Craig Loehle writes in Carpe Diem (American Enterprise Institute), “The idea that socialism is “just” more redistribution in the name of equality ignores the perverse effects of high taxes. Without profits, there is no money to open new stores or buy new equipment or trucks etc. Without the new investment, there are therefore no new jobs. It takes money to create new jobs and only higher profits will enable higher wages to be paid…”