Black money: Instill fear of jail and social censure in tax evaders, says CBDT

Taxman should instill the fear of “incarceration, loss of liberty and social opprobrium” in tax evaders and prosecute them in large numbers to create a credible deterrence against the menace of black money…

Taxman should instill the fear of “incarceration, loss of liberty and social opprobrium” in tax evaders and prosecute them in large numbers to create a credible deterrence against the menace of black money, the CBDT says.

The apex policy making body of the I-T department, in a strategy paper for a recent conference of top tax officials, told tax sleuths that the “need of the hour” is to effectively launch prosecution cases in wilful evasion cases at the earliest even “without” waiting for the outcome of any other appellate processes.

“If the endemic and rampant tax evasion is to be contained, then search/survey on a few evaders limited to bringing their concealed income to tax can never be the solution. The remedy must lie in creating credible deterrence so that potential evaders desist from crossing the red line. Deterrence cannot be built merely by levying tax on concealed income.

“Deviant assesses take minor financial hiccups in their stride and promptly return to their wayward ways. What scares them is the fear of incarceration and consequent loss of liberty and social opprobrium that it brings. It is to this fear that a search/survey action must address itself,” the Central Board of Direct Taxes (CBDT) said in its paper for financial year 2015-16.

It added that “prosecution and penalty must, therefore, be the objective of search/survey action and the principal measure of its success”.

“Tax on concealed income should remain merely incidental,” it said.

The department, tasked with combating black money cases in India and abroad, feels effective use of penalties and prosecutions are an “important limb” in creating a “credible deterrence” against the menace and its staff and officials should work in this direction, henceforth.

“It (investigation) should rather be creation of credible deterrence through successful prosecutions and penalties which would go a long way in reducing the menace of black money by improving voluntary compliance,” the strategy paper said.

The top brass of the CBDT, while framing the latest action plan, has kept in mind a CAG report of 2013 where the central auditor pointed out a number of “deficiencies” in administration of penalties and prosecutions which required immediate attention of the department which enforces tax laws in the country and collects a variety of taxes like Income Tax, Corporate Tax and Wealth Tax.

CBDT has also asked its top officers in the ranks of Principal Chief Commissioners and Chief Commissioners posted in various parts of the country to tighten up their belts and diligently monitor and coordinate prosecution matters.

“Officers fear the long-winded court proceedings in absence of due support mechanism. There is inadequate monitoring of prosecution cases pending in the courts and almost complete lack of coordination with the judicial machinery,” the board observed while issuing the new directives.

All these measures, the strategy paper said, are also required to be enforced strictly during this financial year as the government has recently asked the tax department to add at least 25 lakh new assesses every month and widen the tax base.

“The strategy to achieve this ambitious target would include creation of credible deterrence through imposition of sustainable penalties and expeditious filing of prosecution complaints in appropriate cases,” it said.