NEW DELHI: Following his path-breaking speech complimenting wealth creators on 15 August, Prime Minister Narendra Modi is walking the talk by sharply reducing the number of economic matters that were criminalised during the United Progressive Alliance (UPA) regime. Economic experts were unhappy with the current Central government for furthering former Finance Minister P. Chidambaram’s steps that made even petty economic mistakes a non-compoundable activity. Now they are glad that the Prime Minister’s Office has ordered a rollback of this growth-retarding measure.
Non-compoundable offences are offences that cannot be compounded or compromised. For example, if a person even by mistake submits a wrong “tax sheet” to the tax authorities, the person will attract a jail term as the Central government has kept the act of tax evasion under non-compoundable activities. Compounding in Income Tax (I-T) law means that the Tax Department does not file a prosecution case against the tax offender in court in lieu of payment of due taxes and penalty. The matter of compounding is dealt with under Section 279(2).
Many developed and developing countries, especially East Asian countries, have no such provisions criminalising economic offences. In India, not filing an income tax return, not transferring TDS amounts, not spending funds meant for corporate social responsibility (CSR) as per guidelines, mismatches in the tax-sheet, and many other petty economic offences are non-compoundable acts and people responsible for such acts are being sent to the jail.
Following P. Chidambaram’s footsteps, earlier this year, guidelines issued by the Central Board of Direct Taxes (CBDT) had made tax-evasion a non-compoundable act. The new guidelines went a step further and under the new guidelines, a person/entrepreneur could be sent to jail for even forgetting to transfer TDS.
However, the Ministry of Finance has removed the CSR offence from the non-compoundable list and now there will not be a jail term for not spending the mandated CSR funds. The Ministry’s decision is being seen as a positive step, considering the huge stress that the Indian economy has been witnessing allegedly due to such regressive provisions.
Earlier this year, the CBDT, the policymaking body for the I-T department, had issued a 32-page guideline for “compounding of offences under direct tax laws, 2019” which will be executed under the I-T Act, 1961.
“Compounding of offences is not a matter of right and the department can extend such a relief only in certain cases keeping in view factors like conduct of the person, the nature and magnitude of the offence in the context of the facts and circumstances of each case,” the new guidelines mandate.
Subodh Khanna, a chartered accountant and director at the tax guide forum, told The Sunday Guardian: “Criminalising economic offences, especially in cases where direct tax is involved, will create a kind of tax terrorism and inspector raj in the country where tax officials can easily put individuals behind bars for even submitting wrong tax-calculation sheets. Many traders and individuals are already scared due to such provisions and it has also impacted the business environment of the companies. It is really disturbing to even think that not transferring the TDS on time may lead to jail.”
“Increasing criminalisation of petty economic issues has led to chaos in the market; the determining factor for business in not the fear of jail term, but it is the positive environment that helps business grow. Lately, the Ministry of Finance has realised this and has openly stated that it will revisit such provisions,” Khanna added.
Saurav Chamaria, another expert, said: “Today every economic activity is being seen as suspicious; we have criminalised everything and created so many agencies like Enforcement Directorate, Central Bureau of Investigation, Serious Fraud Investigation Office (SFIO), Directorate of Revenue Intelligence (DRI) and Income Tax, all with prosecution power and they have added fear in the minds of the business community. Such fear will lead to a bad economy for the country.”
It is to be noted that the CBDT is working on direct tax reform and in this regard, a committee has been set up by the Ministry of Finance. The committee was set up last year and ever since has been getting extensions. Also, the Ministry of Finance is working on plans to remove many obsolete laws to ensure a positive business atmosphere in the country.