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Most millionaires do not pay tax Tax Increase, No Problem: Indians are Tax Immune

Incometax
By Raj Kanwar 

IAN India Correspondent

One would imagine that the 10% surcharge proposed on income of above rupees one crore* in the budget by Finance minister P Chidambaram would have set a cat amongst the pigeons of India’s crorepatis. But, it has not ruffled their hair, not even a wee bit. Not unsurprisingly, since almost all of these crorepatis are virtually income tax-immune. *1 crore = 10 million

According to official calculations, there are only 42,800 individuals and entities in a country of 1.20 billion people paying tax on an income exceeding rupees one crore. It is such a pity considering that India now proudly boasts to be the second largest growing economy in Asia.

The country today is in the midst of an unprecedented housing boom with hundreds of multi-storied commercial and residential complexes coming up virtually in every nook and corner of the country, particularly in the National Capital Region (NCR) in and around the Indian capital. Fast growing towns of Noida, Gurgaon, Faridabad, Ghaziabad and several more in the states of Haryana and Uttar Pradesh bordering New Delhi are currently the hot favorites both of the builders and the investors, and have overnight become virtually metropolitan cities.

Each and every such building produces many crorepatis who then reinvest their illicit gains in further building up their land banks and thus multiplying their fortune by geometrical progression. This process of enrichment has also a domino effect bringing riches to virtually everyone connected even indirectly with such construction projects. It is understood that most of such money is ill-gotten and kept largely outside the purview of the income tax or internal revenue authorities.

Apart from the construction boom that is everyday producing crorepatis by the dozen, most other crorepatis are the corrupt bureaucrats and the crooked politicians who all are busy amassing money with both hands as if there is no tomorrow. Many of the government departments are treated like “milch cows” that are readily and greedily milked by whosoever gets a chance. Departments such like Delhi Development Authority (DDA) and similar authorities in other cities besides the municipal corporations in most parts of the country are the traditional dens of corruption. Almost everyone right from the bosses to the lowest peons have their hands in the till. The reason that they are not being caught red handed is that even their supervisors too are engaged in this game of getting rich by hook or crook.If there are some unusual exceptions, their acquiescence in the rampant corruption being indulged by their bosses or colleagues presumes their implicit acceptance.

…and promoters of educational institutes 

Many of these new crorepatis could also be found among the promoters of hundreds and hundreds of educational / engineering / management / paramedical and other such institutes that have grown virtually like mushrooms in most parts of the country. Interestingly, most of these promoters were initially involved in real estate, and moving on to this business was simply a seamless transition for them in the sense that such businesses essentially required imposing buildings in order to impress the unwary and naïve but ambitious students. In due course, most of these institutes gave birth to new offspring and second campuses. Many others to enter, what looked like a flourishing and easy ‘business’, came from liquor trade, flaunting their “black money” chests. Paradoxically, hardly anyone of their promoters wore an educationist’s tag; some are just plain graduates with no pretensions of being scholarly.

Enter chartered accountants!! 

When these construction and ‘educational’ businesses became so attractive that the chartered accountants of such nouveau riche ‘entrepreneurs’ too started licking their lips in greed; a few became the benami partners of their clients while others, more enterprising, set up their own construction projects making use of the various loopholes available in the law such like buying ‘dormant’ private limited companies and purchasing lands in their names. Partnership firms came up overnight with their wives and HUFs as partners while the chartered accountants merrily continued their practice in utter violation of the ethics of the Institute of Chartered Accountants of India.

The question is how ‘black money’ becomes such an easy multiplier? Just consider that you are constructing a large and spacious building with a carpet area of one lakh square feet and you do not have even 10% or 20% of its approximate cost in, what is colloquially called, “No. 1” money. No problem. Every supplier of construction and building material or for that matter every other product including bricks, steel, cement, bajri, sand, timber or whatever will be happy to accept your payment in cash. Cheques are strictly “No, No” in such transactions that normally run into crores of rupees. In a way, this ‘merry go round’ game is a win-win situation for each and every player; no cheque payment, no receipt and no VAT or service tax, and lastly no income tax. Everybody is happy but the country everyday of the year loses crores and crores of rupees. But then we Indians are some of the most self-centric peoples in the world. WHAT A PITY!!!

Lakshmi Maa – the presiding deity 

It is not alone the players directly engaged in these massive construction projects who are the votaries of black money; they also include the entire chain of the wholesale distributors or manufacturers located in metropolitan cities or other large commercial hubs. Goddess Lakshmi, does not distinguish between the black and white money, and no wonder that devout worshippers pay her special obeisance on the Diwali night. Interestingly, even payment of crores in cash is no problem for these crorepati businessmen. A clandestine and foolproof system of money transfer is in vogue. If you have to pay a crore of rupees to someone in Delhi, you pay that amount to an identified person in Dehra Dun and that someone in Delhi will get that amount at his house, a la Western Union.

Professional Evaders 

In addition to these “entrepreneurs”, there are a large number of white collared “respectable” professionals enjoying high esteem among their peers who too are very adept at evading income tax. There are hundreds and hundreds of such high profile doctors, lawyers, chartered accountants and others in India with incomes easily exceeding a crore of rupees. A news story in MAIL TODAY sometime ago had lamented that, “Independent professionals and traders with lavish lifestyles are reported to be filing tax returns that reflect incomes ranging from a mere rupees 2,00,000 to 5,00,000 a year. The big cars that they use are bought in the names of business entities. “These assessees have been showing withdrawals from their bank accounts of paltry rupees 10,000 or so to run their monthly expenses.” Who they think are they hoodwinking? These worthies by and large declare incomes based only on the payments received by checks from government departments or corporates; the cash receipts are attributed to the benevolence of goddess Lakshmi and as such not shown or recorded anywhere.

And all these retailers

Now look at the numerous wholesale and retail businesses. Almost 99% (I don’t know why I have spared the remaining 1%?) of such businesses including the kirana stores or sweet shops or general merchants or other outlets all over the country either do not pay any tax whatsoever or just about file a nominal return. It was in the support of such kirana stores that many opposition parties shouted themselves hoarse in opposing FDI in multi-retail businesses. There must be on a conservative estimate several millions such kirana and other retail stores in the country who do not generally pay income tax or even sales tax.  Retailing in India accounts for 14 to 15 percent of its GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. Yet, this significant sector of the Indian economy makes a woefully meager contribution to India’s tax revenues.

“It is indeed unfortunate that we as Indians by and large are bereft of the culture of tax compliance. The Indian tax rates are among the most attractive in the world and we should all happily and readily contribute our mite by way of paying our due taxes,” opined a senior chartered accountant. He also expressed his disapproval of the recent tendency among some of our colleagues of carrying on ‘benami’ businesses.

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One Response to Most millionaires do not pay tax Tax Increase, No Problem: Indians are Tax Immune

  1. Pingback: Most millionaires do not pay tax Tax Increase, No Problem: Indians are Tax … | India Entrance Exam Info

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