After VDIS

The deadline extended by the Ministry of Finance for the voluntary disclosure of income scheme (VDIS) expired the other day. The Inland Revenue Department (IRD) has managed to collect more than 650 million rupees since the government announced VDIS in the current fiscal year budget last July. Earlier, IRD had collected 440 million rupees, rather short of the target. Private sector entrepreneurs represented by Chambers of Commerce and Industry criticized the tax dragnet. Nevertheless, IRD has enlisted more than 3,000 new taxpayers. IRD was able to collect an additional 155 million rupees during the extension period alone. This is encouraging. The government has also identified potential tax evaders. VDIS was introduced with the objective of dragging defaulters into the tax net and, at the same time, helping meet government expenditure. Likely tax defaulters may include corrupt politicians, bureaucrats, doctors, lawyers, real estate operators, businessmen, etc.

The Income Tax Act gives tax officials every right to dig out information and build up cases against tax defaulters. IRD officials have said there are still more than 1,000 tax payers who have failed to disclose their sources of income even during extension of VDIS. Who are these tax defaulters? Are they corrupt politicians, doctors, business leaders or ordinary citizens who may have fallen prey to a crude legal system? Past experience shows that the government has always taken action against petty businessmen and ordinary citizens rather than corrupt leaders who have amassed wealth at cost to the public exchequer. A 1990 cabinet decision stated that "all ministers including parliamentarians whether in or out of power have to disclose their sources of income within 15 days." Unfortunately, most of those politicians have yet to disclose their sources of income. The government has not yet brought to light how many such corrupt politicians disclosed their property under VDIS recently. Neither did IRD come up with specific measures against corrupt political leaders before it constituted the Income Fixing Committee (IFC). This is indicative of a crude nexus that has developed between businessmen, politicians and bureaucrats.

IFC can no longer remain silent about politicians or business leaders who have evaded taxes for years. IFC can neither seek explanations from such tax defaulters, nor should it ask for details about their property before it acts against them. Such defaulters have developed a tendency to evade taxes and this has undermined the government’s revenue mobilisation. Perhaps, it would not have had to opt for VDIS had such tax evaders realised that they too need to contribute to the development of this country. Tax investigation officials have every right to raid business premises, houses and warehouses before they seek explanations about an individual’s property. Now that the government has declared war on tax defaulters it should really go after the fat cats who have managed to keep out of reach. It should also show similar resolve in enforcing VAT, which has not been much in the news these days. For while VDIS may have made many feel the tax bite like never before, it is in VAT that the lion’s share of potential revenue lies. Any crusade relating to VDIS should not be at the cost of diverting manpower and energies away from VAT on which the government had once staked its reputation.