Arming the taxman

After the fringe benefit tax and the cash withdrawal tax and the ITC ordinance, there is now the Taxation Laws (Amendment) Bill of 2005, introduced in the Lok Sabha.

On the face of it, this is an attempt to clean up and streamline tax laws, but the Bill contains some scary attempts to tighten the stranglehold of the taxman and increase the ability to harass taxpayers.

A new sub-section, 28BA, for instance, allows customs officials (11DDA in the case of excise) to “attach provisionally any property belonging to the person on whom notice is served”.

That is, customs/excise officials may levy a tax on you which you can contest in the Cestat or in a court. But during the time that the case is being heard, your property can be attached if the tax official believes that you will transfer/sell the property.

It is not difficult to imagine the havoc that the taxman can wreak, and the offerings that will be made to prevent property from being attached.

While the attachment is supposed to be for a period of six months, this can be extended by the chief commissioner, so your property can remain attached for years to come.

It must be said in defence of Finance Minister P Chidambaram, who has introduced this piece of legislation, that there are several cases where during the time of appeal companies go ahead and remove assets; some remedial action was therefore necessary.

But surely this should not be something that is worse than the cure? A better solution, perhaps, could be one bandied about in the context of the SICA bill, that directors of companies will be personally liable for any transfer of assets during the period of a disputed tax liability.

The increased powers of arrest by customs officials are similarly problematic. The earlier powers to arrest were there under Section 135, but these have now been extended to other sections such as 132, which deals with cases where the declaration made is false.

So you could claim the value of an import is less than what the customs official thinks it is, and on that ground you can be arrested.

Since cases of value are always a matter of interpretation, giving such additional powers is draconian and unnecessary since, as any customs official of repute will tell you, his ability to collect taxes was not hindered by the lack of such powers in the past.

The bill, thankfully, does have some good provisions as well, related to the tightening of provisions for gift tax as well as those relating to charity, that were misused in the past.

The provision that goods seized by customs officials can be released under a bond is, similarly, good news as it ensures that the normal running of a business does not get affected.

The taxing powers given to tax officials, however, undo the good that the bill seeks to do.