June 15, 1998

Simpler tax laws are a natural corollary to the new amnesty scheme

The samadhan scheme offered by finance minister Yashwant Sinha in the recent budget is a tax amnesty with a difference. While the VDIS of 1997 was aimed at disclosure, Samadhan is a sort of plea bargaining on tax arrears under litigation. With a colossal Rs 52,000 crore locked away in pending revenue cases, Samadhan is a commendable effort to reduce the load of arrears and to de-clog the system. It is true two successive amnesties may give an impression that the waivers are indeed forever -- and it could well be smart to cook the books this year for a samadhan (solution) to the problem next year. But that problem can be tackled as long as Samadhan remains a one-off settlement, not to be repeated at short or regular intervals. Tax-payers are prone to respond to "rational expectations" and the best way to cope with such calculated avoidance is to make amnesties perfectly random.

However, the finance minister should also address the more fundamental problem of the economy -- the load of unaccounted assets -- which is caused by opaque and burdensome laws and procedures that govern direct and indirect taxes. The more nebulous the laws are, the more the tendency among the assessing officers to exaggerate the disallowances and duty claims. As tax officials' careers are linked with collections, creative assessment has become the order of the day. The volume of tax evasion is obviously proportionate to the arbitrariness of assessments and the enormous cost of the law's delay. The finance minister should therefore use the Samadhan opportunity to carry out amendments to the tax laws. The aim must be to limit the discretionary powers of officials. If the assessment procedures are made rule-bound and transparent, there will be no room for inflating claims and, therefore, fewer incentives for tax evasion. Samadhan can then be an instrument to legitimise the economy.

Go Get Them, George

Punishment postings for feckless babus should become national policy

Few will disagree with Defence Minister George Fernandes' decision to send three recalcitrant officials on a temporary punishment posting to the Siachen Glacier. For a year and a half, these lowly bureaucrats from the Defence Ministry's finance department have not cleared a proposal to buy snow scooters. The scooters are essential in the inhospitable Siachen region. In their absence, soldiers sometimes have to wade across hip-deep snow in temperatures reaching minus 40 degrees Celsius. The three officials had raised a series of trifling financial objections and even questioned the need for the vehicles. An outraged Fernandes has asked them to travel to Siachen to gain first-hand experience of India's most terrible battlefield. Similar sensitisation tours to the North-east, Kashmir and the Rann of Kutch are on the anvil.

Ever since the infamous jeep scandal of 1948, India's civilian rulers have sought to profit or gain cheap thrills at the expense of the hapless jawan. There is something nauseating about a nation that does its best to discomfort those who defend its frontiers. Hopefully, Fernandes' decision will shake his babus out of their smug complacency. Actually, there is a case for extending the Fernandes doctrine to other wings of the Government. During the recent power crisis in Delhi, it was suggested that rather than being housed in the privileged, scarcity-proof Lutyens' zone, Union ministers should be dispersed to residences in different areas. Admittedly, the comparison between this plan and Fernandes' order is not quite analogous. Nevertheless, what is apparent is that the gap between those who take decisions and those who are affected by them has become simply too large to be sustained. A month ago, the defence minister spoke his mind and the prime minister took the cue; it is time for events to repeat themselves.

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