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The Business Interview/V M Muthuramalingam

'Despite economic slump, Bombay is ahead in tax amnesty'

Earlier, Revenue Secretary N K Singh had expressed his disappointment with the response to the Voluntary Disclosure of Income Scheme in Western India, mainly Bombay. Pritish Nandy now interviews V M Muthuramalingam, the seniormost chief commissioner of Income Tax in Bombay and in charge of the VDIS in the city to understand how the scheme is doing in the business capital of India. Will it pick up? Or is it destined to fail amidst this recession and atmosphere of political uncertainty?

Why is there a general impression that the VDIS has failed to take off in Western India, particularly Bombay? Why is Revenue Secretary N K Singh so disappointed?

I have read interview with N K Singh. I don't think he said he was exactly disappointed. He said the response is better in some parts, weaker in other parts. There is a perception that Bombay and Ahmedabad in the western region are important commercial cities and they should be in the forefront (of the VDIS collections). I agree with the perception.

I can speak for Bombay. It is a well known fact that the property market here, around which revolves the entire economy of Bombay itself, is dull and down. You might have seen in newspapers recently that Bombay Municipal Corporation's octroi collections have gone down by Rs 6 billion compared to last year. This indicates that Bombay's economy is in a worse (state) than other's. People were talking of a very subdued Diwali this year.

So all these things add up together. In September, we had the commitment to advance tax also. Regular tax. So, with all that, I am happy with the response.

Well, the stock market is in a spin. The bullion market is down. The real estate market is, for all practical purposes, stone dead and unlikely to revive?

Agreed. That is why I would venture to say that Bombay's economy is worse than the economy of other cities. Therefore, people don't seem to have cash. There is a liquidity crunch. It is said that the banks are flush with money but it hasn't come to the people's hands. And on top of that the regular tax commitments were there.

But I can tell you that the response is improving day by day. Citywise, I still think that Bombay is in the forefront. In terms of number of declarations, amounts declared and taxes collected.

As far as Bombay is concerned, expectations are also very high and therefore there is a feeling that Bombay is lagging behind. I submit this is not correct. In schemes of this sort the response picks up later in the day and chartered accountants and tax practitioners were busy filing company returns by November 30. They are saying that from December 1, onwards they will start the VDIS work. I am sure there will be an overwhelming response to the VDIS from Bombay from the first week of December onwards.

Bombay people are highly intelligent. They know how to take advantage of this simple scheme. They are also much more straight forward than declarants in other centres where even under the VDIS they are trying to reduce taxes. I can say with a lot of confidence that, as far as Bombay is concerned, all my declarations are substantial. People are very, very truthful and I expect this trend to continue?.

Are you getting a daily inflow of declarations or are they coming in by spurts?

There is a steady inflow now. It is increasing also. I cannot tell you the numbers but I can assure you that day by day the numbers are increasing.

The values?

Yes, the values are also increasing.

There are disconcerting reports that the information filed under the VDIS is being leaked to the underworld. As a result, many declarants are now under threat from mobsters who want a share of the loot. Some of them have gone to the police to seek protection against extortion demands. Have you investigated this?

Yes, we have investigated these reports, we have contacted the police also. Ronald Mendonca, the police commissioner, has informed me that there is no complaint whatsoever from any quarter. These reports are figments of somebody's imagination. Maybe some vested interests are working against the scheme. This is the hunch we have. I cannot tell you further details but one thing I can assure the tax payers is that there has been no threat to any declarant from the so-called underworld or mafia. These are all fabricated, false stories. Even the person whose name was quoted in Bombay Times -- Mr Dalal -- he has sent a letter to Bombay Times denying the involvement of his name and denying the news that is attributed to him. So I would request the public not be carried away by these rumours. Let me assure you, Mr Nandy, there is no leakage of information from the department's side.

The declarations are handled by very senior officers. The commissioners keep the declarations in their cupboard. In fact, even I do not know who the declarants are. I do not ask my people either. I just keep a track of the numbers, the figures?

How many commissioners handle the receipt of declarations under the VDIS?

Fifteen.

All fifteen of them receive VDIS declarations?

Yes.

Well, that must be a little for you to monitor and control. How do you know that one of those officers, or (say) one of their staff members, is not indiscreet or simply slipshod?

No, we are careful. I have to exercise careful control. I have no option in the matter.

Why have you not created a small cell to handle the declarations? That would have limited the risk of exposure?

Under the law, the jurisdiction commissioners are only empowered to receive the declarations. So we cannot have a central cell. But we do have cells under each commissioner. Plus we do have a cell, not for receiving declarations but for giving advice.

In Bombay we have a unique system whereby declarants refer questions to us for clarification. This cell works on these clarifications. The board has issued clarifications on almost all the issues raised and whatever comes to us, we also clarify.

Why did you need to issue such a huge number of clarifications at every stage? Individuals, professional bodies, corporates have been asking for a clearer picture on specific issues. Couldn't the scheme have been better drafted in the first place?

Some confusion has been caused in the public mind mostly I would say by the professionals. The scheme itself is very simple. It is a two page form that even an illiterate person can fill up. If jewellery is involved, the person has to go to a registered valuer whose names are known. The affidavit is simple enough. Any notary public would give it. These are the simple requirements.

Now the problem comes when people don't want to pay 30 per cent tax. I don't think there ever was a scheme so simple, so attractive in the sense that for 30 per cent tax is the lowest ever with no questions asked, no links with your files, no questions asked at a later date, no digging into past records and the immunities are enormous. So people in their own interest should declare (their hidden wealth) without going to chartered accountants or seeking how to reduce their liabilities further. Only when they approach these professionals for advice on how to reduce liabilities, you get these requests for so-called clarifications. These clarifications ultimately get published as books and some people make money. That is all.

Our intentions are genuine, bona fide. We want to help declarants. But what can we do with these professionals who come in between? We cannot distinguish between a genuine clarification sought and that which is sought with a commercial motive. That is why we clarify all of them. When someone comes to us for advice, I cannot say no.

Do you think the political uncertainty is frightening off declarants? That they fear that if the government changes, their immunity from prosecution might vanish, they may get harassed?

I am not competent to talk about political uncertainty but I do not know how people can have such fears. VDIS is based on an act of Parliament. No successive government can or is empowered to change this law. Whether the BJP comes or Congress comes or this government remains, the law will continue. Whatever happens, this scheme will run its course and it provide the immunities promised.

The fear is of harassment after the scheme is over.

The guarantees given are in law. They are enforceable in a court of law. They are inscribed in the statute. So no one can go beyond the provisions of the law and start harassment even if there is a change of government.

And according to the directives of the Supreme Court, this has to be your very last such scheme?

Yes, we have given an undertaking to the Supreme Court that this is the last of our disclosure schemes. So no government can in the future promulgate a law that allows this kind of voluntary declarations. So this is a golden opportunity for those who have undeclared incomes to come clean and pay 30 per cent tax.

How will you protect them from interlinked taxes being imposed retrospectively by other tax authorities? Sales tax? Excise? Wealth tax?

I agree with you. When unauthorised income comes in the books, these questions will naturally arise. Well, the confidentiality provision is there. From my side, nothing will leak out. I can give that assurance from the department's side. But if the books themselves are to be produced before sales tax authorities at a later date, (there may be problems) I agree. That is why a dialogue is going on between us and the state government. Last week, I met the chief minister. He listened to us patiently when I suggested that declarants under the VDIS should not be troubled under the state laws. He said he would put our proposal before the state cabinet.

One last question: Don't you feel (as a tax payer yourself) think such schemes are somewhat unfair to the honest tax payer who has paid much higher taxes to earn his wealth? The dishonest tax payer is now a beneficiary of lower tax rates.

True. I agree with you. But sometimes we have to sometimes weigh economic and ethical considerations against each other. Plus, there is a crying need to garner this black money. It was Jyoti Basu who brought up this idea in the National Development Council last year. The finance minister took up the cue from there. On details, there is not much of agreement but the point is that both the state and Central governments need enormous funds for infrastructure and power generation programmes. Where will they find the money? We are faced with a fiscal deficit on other accounts, regular accounts. That is why this scheme was created.