VDIS
Pay Up or Else

Even as thousands debate about filling their income tax returns, the authorities prepare for a major drive to unearth undeclared income. A raid raj might be in the offing.

By V Shankar Aiyar

It was only to be expected. But the width and depth of the operation would leave even the worst cynics and sceptics breathless. For over six months now, officials of the Income Tax (IT) Department have maintained a hectic schedule -- tapping databases, checking car dealers, scrutinising cellular phone subscriber lists and identifying J-Class fliers. The aim of the exercise: to cast the tax net wider.

In other words, the IT Department is getting set to target tax-evaders even as multitudes are debating the pros and cons of filing their returns under the Voluntary Disclosure of Income Scheme (VDIS) which ends on December 31, 1997. What's more, the Revenue Department is serious this time. As Revenue Secretary N.K. Singh says, "Life won't be easy and enforcement will be far more rigorous than people have reckoned with."

Already, there is enough evidence of it. Unlike in the past, the IT Department is not into playing blind. Its approach this time around is quite systematic. A lot of homework has already gone into it, a definite gameplan chalked out to reach the deep and hidden pockets of tax-evaders. All this backed by a Rs 60 crore computerisation programme covering 33 centres.

The rationale for the exercise is simple: in a country of 950 million-plus, there are just 12 million who are assessed or file returns. Of them, barely 12,000 are in the Rs 10 lakh-plus tax bracket. This makes a mockery of the fact that more than a million people own Maruti cars and more than 50 million have tv sets in the country. To quote Finance Minister P. Chidambaram, "People who live in apparent comfort should have the satisfaction of finding their names in the records of the department."

The department's basic weapon is the newly amended Section 139 of the Income Tax Act which requires residents of 12 major cities fulfilling two of four conditions -- ownership of flat, car, phone and foreign travel -- to file returns with the department. The 12 cities are Delhi, Mumbai, Chennai, Calcutta, Bangalore, Hyderabad, Jaipur, Kanpur, Pune, Ahmedabad, Ludhiana and Chandigarh. Major commercial centres like Lucknow, Baroda, Salem, Coimbatore, Goa, Thiruvananthapuram and Kochi will be included at a later date.

If the IT action plan runs its course, it will be difficult for anyone to escape its long arm. Consider the facts:

• Over the last two weeks, the department in Mumbai has sent out letters to 25,000 cooperative housing societies asking them to furnish details of the number of flats in the societies, their owners, the area and whether occupied or leased. This would yield data on about 10 to 12 lakh families.
• The department has got hold of telephone ownership details from Mahanagar Telephone Nigam Ltd. Over 15 lakh subscribers' billing patterns -- ISD, STD calls made, fax connections etc -- will be examined this way.
• Immigration authorities at Mumbai's international airport have provided details of those who have been flitting in and out of the country. Translated, this means data on 18 lakh travellers who have passed through Sahar Airport during the year.
• From car finance and lease companies, dealers, regional transport offices and garages, the department has been able to collect information on over one million vehicle owners.
• The Cellphone Operators Association of India has revealed that there are over 5.97 lakh cellular phone subscribers in the country -- more than 1.7 lakh in Mumbai alone -- who are mobile targets for the tax officials.

These are not the only parameters that are being looked into. IT officials are asking exclusive clubs, some with membership fees starting at Rs 2 lakh to over Rs 10 lakh, to provide membership lists, waiting lists and details of the expenses incurred by members on the club premises. On record are frequent fliers, those flying J-Class, paying visa fees, having open accounts with travel agents, big-tag shoppers, credit-card holders whose yearly bill averages a certain amount, big time jewellery shops, their prime clients and more. Even those taking a break from making money in faraway resorts and health spas are not likely to be spared. These details too are being sought.

Also under the department's scrutiny are those running computer centres (some of which charge a per head fee of over Rs 20,000 a year), laser-disc libraries, two-wheeler agents and financiers, share applicants in the primary market and newly incorporated companies for which data has already been sought from the Registrar of Companies. Notices have already been issued to over 20,000 such companies in Mumbai.

Once the data is collected, it will be fed into a customised software provided by Tata Consultancy Services. This is no ordinary system. For instance, the IT Department in Mumbai has two RS/6000 ibm computers which are capable of dealing with over 60 lakh files at a time. To get a perspective, one could say that these machines can do in one second calculations that will take over a year for a person to accomplish on a normal calculator. Similar machines (which are scaleable with varying power and configurations) are used for seismic data processing by the Oil and Natural Gas Corporation and even for simulating atomic explosions. Once the data is fed into the network, the system will match assets, expenses and names with data already available on those who have filed returns. For example, if X owns a car and a house or has gone abroad and has a phone, the entry will flash for a match in the existing database. Any gap in the chain will result in a notice -- probably a computerised pre-fab sheet -- being issued to X.

According to a senior tax consultant, "Even in the case of corporates, the department plans to put to use industry averages to judge whether companies are reporting higher (which means there could be money laundering) or lower (which means money is being siphoned off) profits." Companies would also be checked for branches and counter-party transactions. What's interesting is that every time a party is raided or surveyed, the data collected could be fed into the system to check if they match with what has been filed with the department. If not, another notice, a survey, a search or even a raid will follow.

It isn't as if the department is carrying out these operations without the general public's knowledge. V.M. Muthuramalingam, IT chief commissioner, Mumbai, reveals that the shivers have already travelled across the city. As against an increase of 30,000 new assessees last year, the department has registered over 1.2 lakh this year (till October). And more are sure to follow. Muthuramalingam is confident "there will be an addition of over 3.7 lakh assessees by the end of March 1998".

To make life tougher for the tax-evader, the Ministry of Finance is also planning a series of moves to tighten revenue collection. "We will make several types of transactions contingent on the quoting of the Permanent Account Number (PAN)," says Singh. "This could include transfer of assets, transfer of movable or immovable property, share transactions and primary market applications. The attempt is to put a severe curb on the use of black money."

The most significant aspect of the exercise is that even those who have declared their income under the VDIS are covered by the operations. Subject to checks and balances, of course. For instance, those who fail to come clean in the VDIS are also liable for scrutiny. As Singh puts it, if someone declares Rs 30 lakh under VDIS and is found to have still concealed Rs 3 crore, the matter is open for investigation. In short, "anyone making a false declaration is doing so at his own risk and is leaving himself open to scrutiny".

Life after VDIS will certainly not be easy for those with deep and hidden profits. While the department's effort is a welcome step towards a cleaner economy, it still leaves a large section of the populace out of the tax net. This includes two out of three working Indians who are engaged in agriculture. And, of course, politicians and others who claim to maintain themselves at Rs 1,450 per month.

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