Income tax officials around India received an office memorandum in January reminding them that sharing taxpayer information with the media could get them six months in jail.

Issued on January 15 by the Central Board of Direct Taxes, the memorandum said, “Instances have come to the notice of the Board where information pertaining to individual taxpayers has been published in the print media with specific reference to departmental sources. In some cases, even details contained in departmental documents seem to have been shared with the representatives of media.”

The memorandum drew attention to the Income Tax Act, 1961, which provides for six months’ imprisonment and a monetary fine as punishment for breach of taxpayer information. “Privacy of taxpayer must be respected as the information respecting an assessee is held in fiduciary capacity and maintaining its confidentiality is a statutory obligation of the Department,” it said.

Representation from companies

While it is not clear what prompted the government to issue the memorandum, a senior official with CBDT, on condition of anonymity, said that several large companies had recently approached the finance minister with complaints about their tax-related information getting leaked to the press.

In addition, the United States revenue department wrote to the board in October 2014. The department sought to draw the board’s attention to reports that had appeared in the Indian media about tax notices issued by Indian tax authorities to some US-based multinational companies, the official said.

Tax notices are issued to those who fail to report their income to the authorities and thereby evade taxes.

Privacy versus Public Interest

Countries around the world have tax confidentiality laws that disallow the sharing of taxpayer information. In November 2014, Canada witnessed a furore over the accidental release of information by its revenue agency to the Canadian Broadcasting Corporation. The information related to the tax breaks earned by prominent citizens on donations made to charities. In a statement of regret, the revenue agency said it would investigate the privacy breach.

But some countries allow for exceptions to the privacy rule. A tax confidentiality law amended in Australia in 2010 says, “Disclosures of information are, however, permitted in instances where privacy concerns are outweighed by the public benefit of those disclosures.”

Income tax officials maintained that disclosure of information often serves to highlight the lacunae in the tax regime which allow tax evasion to take place. Media coverage of tax evasion by major companies adversely impacts their public image and builds pressure on them to pay up.

Officials said that the memorandum issued by the board was unusual. No such intervention was made by the United Progressive Alliance government, even though several news reports appeared on tax-related cases.

India has been embroiled in tax disputes in recent years with Vodafone, Cairn Energy, IBM, Nokia, Shell, among others.

In January, Finance Minister Arun Jaitley told investors at the Vibrant Gujarat Summit that the Modi government was committed to resolving the disputes and bringing in “perfectly non-adversarial taxation”.