Black Money is a community activity

The urge to evade tax seems to be eternal, only the modus operandi keeps changing. There is no limit to the devious ways that people can devise to evade tax. Sadly, it is like a community act, with all involved colluding, many a times even the so-called watchdogs...

The famous quote by Lord Alfred Tennyson, “The old order changeth yielding place to new” is absolutely true in all walks of life. But there is one ex-ception to it and that is human greed. I have personally witnessed it, as a tax officer. Over the years, the techniques and procedures have changed but human greed over ‘tax-eva-sion’ has not ebbed. People continue to enjoy the possession of wealth whether earned by honest or unscrupulous means. We continue to derive sadistic pleasure in evading tax and thus go on accumulating black money.

Changing modus operandi

With changing times, the modus-operandi of the safe-keeping of black money has kept on changing. When I started my career more than four decades ago, I had discovered huge wealth both in cash and kind, by breaking the floor of the bathroom of a very famous film actress. Later, during the middle of my career, I was able to detect money hidden in benami names in properties and also in benami bank accounts. I was also able to detect unaccounted money kept in Swiss banks. Finally, towards the end of my career, as a tax officer, I found that black money was being kept in the accounts of offshore dummy companies and fictitious trusts, located in tax havens.

Multi-moded havala

In our great country, the earning of black money is never a solo act. To a large extent, it becomes a community based activity, where everybody plays his role. In the olden days, a very popu-lar business entity was of ‘havala-givers’. They exist even today in a different format, to assist big businesses to claim bogus input-tax-credit under GST and thus reduce actual tax liability and claim a bogus refund. The havala-givers employ needy unemployed youth, not on the basis of qualification and experience but on the basis of the numbers of bank accounts he can operate or open in his name or in the names of his family members in different banks. The job profile of such employed youth include getting bills and vouchers printed under the names of some commercial entities against each bank account, with statutory numbers like sales tax/VAT details and now GST details. The real owner of the business entity has the possession of the chequebooks of these bank accounts opened in the names of his employees. Regular business people use such havala entities to take bogus purchase bills of goods and services. This way, they inflate their expenditure and reduce tax liability. To make it a genuine transaction, cheques are issued against bogus bills and these cheques are deposited in the bank accounts in the names of the employers. Next, cash is with-drawn against cheques deposited and given back to the drawer of the cheques after deducting commission by the havala dealers.

Regular business people also use these havala-givers to launder their black money. For this, they give unaccounted cash to havala-givers and the same is deposited in shady bank ac-counts and after retaining commission cheques are issued. These cheques are issued by regular business people in their books of accounts as per their requirements and treated as clean money. Incase of investigation or search action, the real havala-givers try to escape, alleging that the illegal activities are not in their names but in the names of the poor outsiders (employees).

How demo got scuttled

Another example of community participation in hoarding black money and helping tax evaders is the recent case of demonetisation. Critics of this scheme have repeatedly said that demonetisation failed as more than 99% of de-monetised currencies came back to the banks. The scheme was a tough measure to reduce black money and it is true that demonetised high value came back to banks, which was not expected. The one reason for this was the window given by the government for people to deposit up to Rs.2.50 lakhs, no questions asked. But even this window was misused by big tax evaders. Market brokers used bank accounts of the poor to deposit unaccounted black money. Later, cash was withdrawn and collected back and given to the tax evaders with a deduction of the commission of 15% to 30% and a small payment to the poor people whose bank accounts were used. This organised way of com-munity programming diluted a good measure brought in to curb black money.

‘Market brokers used bank accounts of the poor to deposit unaccounted black money. Later, cash was withdrawn and collected back and given to tax evaders with a deduction of commission of 15% to 30% and a small payment to the poor people whose bank accounts were used. This organised way of community programming diluted a good measure brought in to curb black money'

Suppressing turnover

One very important method of tax evasion in the past was suppressing turnover. This method continues even today. In most cases, the main objective was an evasion of income tax by evad-ing the liability of indirect tax. In the past, the evasion of central excise duty, customs duty, sales-tax and levies like octroi used to be the goal of tax evaders, as such evasion made the cost of goods sold less, thus increasing unac-counted profit. Today, the evasion of GST is the prime target. When indirect tax is not paid, the goods manufactured and sold are not recorded in the books of accounts and consequently, they are not accounted for payment of income tax. The biggest tax evasion germinates against goods that attract the highest indirect tax like tobacco related products and this trend has not changed with the passage of time. Similarly, smuggling of gold becomes more profitable by avoiding high value customs duty.

Some time tested methods of under invoicing and over invoicing, particularly in the import export business is thriving even today. Normally, under invoicing is done in imports to reduce the liability of custom duty while also allowing some time to illegally transfer foreign exchange out of the country. Over invoicing is done to take high-er bank loans than what is actually admissible against the cost of goods to be bought. One cause of big bank NPAs is this over-invoicing.

Over the years, the techniques and procedures have changed but human greed over ‘tax evasion’ has not ebbed. People continue to enjoy the possession of wealth whether earned by honest or unscrupulous means. We continue to derive sadistic pleasure in evading tax and thus go on accumulating black money

Colluding watchdogs

One very unfortunate aspect has been a negligent and sometimes even collusive auditing in cases where tax evasion has mushroomed. In the recent PMC Bank case its auditors have been arrested for negligence. This was also the case in the Satyam scam, when the role of au-ditors was questioned. The system is bound to fail when watchdogs are negligent or become collaborators. Corruption among government officials also worsens the situation.

Greed is a bottomless pit and in the end it fails even the greedy. Tax evasion is the manifestation of greed and it is also illegal. The tax evader has all the potential to fail and get heavily penalised. We people have to resolve that we will pay tax honestly as the money so paid goes into nation building. We yearn to become a great country but this is not possible unless taxes are paid honestly. The sad thing is that we use our intelligence in devising ways to evade paying tax. We should not wait until we are caught. Paying taxes honestly is a form of patriotism.

Steps to streamline

The government is trying its best to remove the hardships of taxpayers. One hardship suffered by taxpayers has been undue harassment by tax officials. The government has now started the scheme where all scrutiny of tax assessments will be done in such a fashion that both taxpayer and tax officer do not know each other. There will be no physical interface between them. Online returns filed and selected for scrutiny will be forwarded by the central nodal authority to randomly selected officers located anywhere in the country. The selected officer will send queries, if any, online to the taxpayer, and he in his turn will also reply online. Assessments will be done by those randomly selected officers based on online questions and answers. This will ensure the protection of taxpayers from harass-ment and illegal demands.

It has also come to the notice of the government that sometimes unnecessary notices are used by the tax department, so now each will bear a document identification number (DIN) which will be a system generated number and the same will curtail unnecessary notices.

Both taxpayers and the tax department have to move forward in the interest of the country.