The government’s latest proposal to charge 20% tax collected at source (TCS) on expenses abroad (barring some) from July 1 is quite baffling. Attempts to defend the move have also been unconvincing. Proponents of the move have argued that it is adjustable against the advance and final tax payable when filing returns. In addition, they have said some people make large expenses abroad such as remittances for deposits, purchase of immovable property, investments in equity/debt, gift and travel without enough returned income. Of course, all these arguments have been rounded off with the old hackneyed point—it will encourage more people to file income tax returns.
However, let’s look at it differently. The income tax department has been mining data of all international transactions, which is why it has been able to draw these conclusions. So, they are aware of people who don’t seem to have enough income going by their tax returns, yet are spending lavishly abroad. All these transactions are electronic and, therefore, can be traced. Also, since Aadhaar and PAN card are linked to bank accounts, it should not be so difficult to track such culprits. If the idea is to trace or catalog such tax evaders, even 0.5% or 5% will serve the same purpose. So, is there no apparent logic for blocking 20%?
This can still be justified if the government is seriously short of cash and in need of the free float, or if foreign exchange reserves are disastrously low or if our income-tax department has been inept in catching tax evaders. None of these is relevant. Some others are floating theories that the government wants citizens to spend in India so that domestic tourism gets a fillip and increases tax collections. If true, it is unfortunate. After all, it is the citizens’ post-tax income—whether it is spent in India or abroad should not be mandated by any government. The amount collected from such a tax may not be very big, but it sends out a very wrong message. The government seems to constantly harp on making life easier for taxpayers, yet the amount under tax disputes seems to be only going up. Such moves will only increase the number of disputes, which already account for a whopping Rs5.58 trillion (personal income tax), as of 2021-22. In 2013-14, this stood at Rs 2.59 trillion—a rise of 115% and growing at a CAGR of 10.07% over 8 years, faster than the GDP growth.
Anyway, our tax system is quite complicated. If one does not agree with the taxman’s assessment, the next step is to approach the Commissioner of Income Tax (Appeals). The worst part: One has to shell out 20% of the amount to even appeal. No wonder, most people prefer to quietly pay up smaller amounts, and sometimes, even not-so-small amounts, to avoid any hassle. There are other ways of dealing with tax evaders. If there is concrete evidence that some are misusing the system, catch them and make a public spectacle like banks do by putting pictures of malicious defaulters in newspapers. Such powerful steps will surely have more impact on the ground and serve as a strong deterrent for most. For a government claiming to be committed to simplifying the tax regime through faceless assessment and dispute resolution schemes, beating all citizens with the same stick just can’t be justified.