Burdening the state

Logically, the penalty amount handed out to the affected tax payers should come from the persons responsible for the delay...

The income tax department harassing people may be something like ‘dog bites man’ kind of news and therefore evokes no special interest. But the tax department itself paying a huge penalty to the taxpayers is a ‘man bites dog’ kind and therefore definitely a newsworthy episode. Not only did the tax department pay a hefty sum of Rs 36,365 crore towards interest on the delayed refunds of the excess tax collected between 2006-07 to 2010-11, but faced embarrassment as the Public Accounts Committee (PAC) censured it recently for incurring this expenditure without parliament’s approval.

The PAC’s objection, based on the Comptroller and Auditor General (CAG)’s observation, was that the government violated the constitutional provisions like the article 114(3) which prohibits the withdrawals of any money from the Consolidated Fund of India except under appropriation made by the law.

True, the scheme of things in Indian democracy do not allow the spending of public money without the approval of the people themselves. In other words, the members of parliament elected by the people exercise the power on behalf of them, the electors. That is the reason why the financial statement, commonly known as budget, is present to the parliament every year for its approval as enjoined by the article 112(1) of the constitution.

The finance ministry’s contention, in defence, was that the practice of not seeking specific appropriation for interest on refund as expenditure and instead treating it as a reduction from the gross tax revenue, has been consistently followed since the Income Tax Act came into force in 1961, with the exception of 2001-02 Budget. The rate of interest and entitlement to  interest on excess taxes are determined by the statutory provisions of the Income Tax Act, enacted by parliament.

The finance ministry has also quoted the Attorney General’s opinion of May 2013 that the refund on excess tax is not an expenditure under Article 112(1) of the Constitution. The other explanation for not routing the payment through parliament is that it would result in further delay in refunds and thereby tantamount to harassing the taxpayers.

Whatever be the legal nuances in the method of payment – with the specific approval of the parliament or without it - the critics of the government who are on the side of the people might surely be happy for the justice done to the tax payers in terms of paying them a good 6 per cent interest.

But the real complaint, the squandering of the public money, is not sufficiently audible amid the din created by the applause of some tax payers and the reproach of the CAG and PAC. The basic question is why at all this heavy penalty arisen? It was on account of the delay in settling the refund claims of excess payments. Then, why was it delayed? Was it on account of the irresponsible attitude of the employees in the tax department? Was it due to the reasons beyond their control like heavy work burden? Who was responsible for not correcting the situation if that was the reason?

In public interestIt needs to be conclusively decided in the public interest whether it was the individual’s fault or that of the institution. The liability for the loss of money from the exchequer needs to be fixed accordingly. Logically, the penalty amount handed out to the affected tax payers should come from the persons responsible for the delay.

The amount distributed was not very small to ignore these questions. It was so heavy, as rightly noted by some media, that this payout of Rs 36,365 crore was individually higher than several schemes like the annual allocations made to the Mahatma Gandhi National Rural Employment Guarantee Scheme ( Rs 33,000 crore) in this year’s budget, the Pradhan Mantri Gram Sadak Yojana, (Rs 21,700 crore) and Indira Awas Yojana, (Rs 15,184 ) and the allocation for drinking water and sanitation (Rs 15,260 crore).

Equally pertinent question is, why so much amount in excess of actual tax liability – as high as Rs 70, 000 crore per annum in some years - was collected from the tax payers in the first place? The complaint always has been that there is a high rate of evasion of the tax in this country. If it is true that many people are not willing to pay the tax, why some of them paid much more than the amount due from them?

Was it a kind of forceful collection to deal with the fiscal deficit concerns, though on a temporary basis? There were in fact reports of informal ‘go slow advisory’ some time back. How far was that legal to do that and who should check that irregularity? Are not the governments who resorted to these practices answerable and accountable to the people, not only to those tax payers to whom the penal interest was paid but to the people in general whose money was paid by the government for its fault.

More pertinent, was it on account of the cumbersome procedures of tax compliance that made the tax payers to pay more than the actual amount due from them? Are the ‘at source’ deductions and other methods facilitate excess collections? Does not this suggest the continued flaws and loopholes in tax system despite several so-called tax reforms?

A doubt also arises if the parliamentary approval route was discarded to evade these questions from the deputies of the people. It is the right of the people to know answers to these questions and it is the duty of the government to clarify all the doubts in unequivocal terms. But, will the government do that?