All eyes are now on S S N Moorthy. A quintessential tax sleuth, he is following the money trail in the Indian Premier League to establish the identity of franchisee owners. Moorthy stepped in to steer the Central Board of Direct Taxes (CBDT) in January last year, when the country was battling the worst-ever economic crisis after the global meltdown. The task of tax collection was daunting. With the economy showing distinct signs of recovery, the top tax administrator is confident of collecting every penny due from taxpayers this fiscal year.
“We will pursue tax reforms. Our priority is to ensure better compliance and taxpayer services,” says Moorthy. He is on the job. Last month, the CBDT took a crucial decision to deduct a 20% tax at source from those who fail to furnish their permanent account number (PAN). The move has far reaching implications. Even a farmer, who does not pay tax on his farm income, has to obtain a PAN if his interest income is over Rs 10,000 a year. The low profile CBDT boss says the new TDS rule will apply to all.
“Ideally, all citizens should have a PAN. This will help the tax department track the audit trail of each and every financial transaction. The tax administration is making it easy for people to get a PAN, besides ensuring timely refunds.”
Should not tax authorities go after the big fish, who evade taxes rather than squeeze incremental amounts from those whose incomes already leave audit trails? Moorthy says the tax administration is equipped to nab all tax evaders, with the tax information network that gathers information on large financial transactions. Glitches, if any, will be ironed out once the tax administration is fully modernised. Eventually, all taxpayers will file their returns electronically and this will significantly reduce the interface between taxpayers and tax administrators.
He admits income-tax returns can be made more saral (easy) if tax laws are simple This will happen once the direct taxes code (DTC) comes into force. “The objective is to have simple and transparent tax laws, moderate tax rates and a quick dispute redressal mechanism.”
So will the revised DTC end tax-exemptions? For instance, will savings instruments such as the public provident fund (PPF) be taxed at the time of maturity? This was the original proposal. The CBDT chief does not want to be drawn into any controversy and only says the code is being reworked. But he defends the existing regime on tax treatment of savings instruments — PPF is not taxed at any stage — saying such incentives are needed in a country that does not have proper social security system.
Moorthy chaired an internal panel to rewrite the tax code in his earlier stint as director general (investigation), Mumbai. This group pitched for strengthening enforcement to plug tax evasion. He does not deny that the problem of tax avoidance and evasion is growing, with companies structuring their deals in tax havens. He is clear that India should get its share of tax dues in cross border deals if the income is generated here.
Should we not have more aggressive approach to check tax evasion using tax havens? Particularly considering that India has not made any headway in negotiating its tax treaty with Mauritius, though there are concerns about round-tripping of investments. Efforts are on to renegotiate the treaty, states the CBDT chief.
When will India conclude reworking its tax pact with Switzerland to secure information on Indians, who have stashed away money in numbered accounts? “We have started our negotiations with Switzerland to make changes in the provisions relating to exchange of information. But it is difficult to put a time-frame on when these negotiations will end.”
At least nine tax havens are in talks with India to enter into an exchange of information agreement, after the G-20 threatened to clamp down on non-compliant jurisdictions. The Organisation for Economic Cooperation and Development (OECD) is driving this initiative. All these efforts will check tax evasion and avoidance through cross-border deals, says Moorthy.
Will India become an OECD member? “We have some reservations with the OECD model. We want to maintain our neutrality and are not in a hurry to take up OECD membership.” Moorthy’s main mission now is to ensure that his team collects Rs 4,30,000 crore from taxpayers this fiscal year.