note demonetisation

Amended tax laws are as poorly conceptualised as demonetisation – and may even be unconstitutional

According to the Constitution, all income tax must be divided between the Centre and the state.

The Taxation Laws (Second Amendment) Bill, 2016, passed by the Lok Sabha on Tuesday with no debate, increases the penalty on those with undeclared income but also provides for the second amnesty scheme for them this year. This is something of a climbdown by a government that had, just three weeks ago, demonetised Rs 500 and Rs 1,000 notes ostensibly to crack down on the black money economy and promised stern action against those who hoard unaccounted-for cash.

The amendment Bill, which was tabled in the Lok Sabha on Monday, increases the tax on “unexplained income” from the present flat rate of 30% (plus surcharge and cess) to 60%( plus surcharge and cess) under the Income Tax Act. If such undisclosed income comes to light in a raid, it will attract a penalty of 30%, in addition to the tax payable, if the person admits to the undisclosed income and returns it. If the person does not cooperate during the raid, the penalty is increased to 60%. Theoretically, undisclosed income, under the proposed amendments, can be taxed up to 90% (plus surcharge and cess). This comes just months after the previous Income Declaration Scheme, which ended on September 30, gave people a four-month window to declare their undisclosed income and pay a 45% tax and penalty, with no questions asked.

This is the stick. The carrot, however, lies in Chapter IX-A, inserted into the Finance Act 2016, which introduces the “Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016”. This is essentially an amnesty scheme for undisclosed income. Under this “regime”, if those with undisclosed income come forward to declare it, they need to pay just about 50% of it to the Government (30% tax + 10% surcharge + 10% penalty) in exchange for immunity from further income tax proceedings on this income.

In addition to this, the declarant is also mandatorily required to deposit 25% of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 – an interest-free deposit with a lock-in period of four years.

The legality of this move, however, is doubtful.

What the Constitution says

Article 266 of the Constitution of India mandates that all taxes and other revenue of the Government of India must go the Consolidated Fund of India, and likewise, all the revenue of the state governments should go to the Consolidated Fund of the State. With regard to income tax specifically, revenue raised by the Union government is to be shared with the state governments based on the formula and method prescribed by the Finance Commission in accordance with Article 270.

By ordaining that those who voluntarily declare their hitherto-undisclosed incomes should pay 25% of that money to the Pradhan Mantri Garib Kalyan Yojana, the Bill effectively imposes an income tax which is not payable to the Consolidated Fund of India but to a specified scheme whose use and ultimate purpose are still unclear. Nor is this money allocated to the states in accordance with Article 270. In effect, the Centre has imposed an income tax that it will refuse to share with the states as it is required to under the Constitution.

A new tax

But can the payment to the Pradhan Mantri Garib Kalyan Yojana be called a tax?

The legal definition of a tax was well established by the Supreme Court in the 1950s. It is therefore no longer disputed that the two distinguishing features of a tax are that it is compulsory and there is no quid pro quo in the payment. A compulsory deposit with the Pradhan Mantri Garib Kalyan Yojana , on which the depositor does not even receive an interest and is locked in for a period of four years, is quite clearly a tax, (albeit refundable after four years, if so required) that is being levied on the person who makes a voluntary disclosure about undisclosed income. Given that no specific purpose is mentioned for the Pradhan Mantri Garib Kalyan Yojana in the Bill, it cannot even be considered a cess. It is therefore a tax that the Central Government seeks to levy, contrary to the Constitutional scheme for collecting taxes.

As with the ever-increasing use of cesses by the Central Government, this scheme suggests that the Central Government does not seriously believe in cooperative federalism, where the Centre and state work together. Because, unlike taxes, the Centre is not required by the Constitution to share the proceeds from a cess to government. However, the Centre has used some of these, such as the Swachh Bharat Cess and the Primary Education Cess, to direct programmes and spending in areas which are within the domain of the state under the Constitution, such as public health, sanitation and education. The Pradhan Mantri Garib Kalyan Yojana seems to be yet another move to undermine the powers and autonomy of states guaranteed under the Constitution.

For all the blatant disrespect of Parliamentary procedure and the Constitution in passing this Bill, as far as black money amnesty schemes go, it is hard to see this one (which makes the declarant pay 75% of the money disclosed up front, if you take the 25% deposit in the Pradhan Mantri Garib Kalyan Yojana into account) as being particularly attractive to the tax evader. Far from providing any real incentive to come forward and declare the money, it is likely to make those with black money sit back and take their chances with an income tax raid, using the time to find better ways to hide or launder their stash. As with the demonetisation of Rs 500 and Rs 1,000 notes, this Bill too does not seem to have been entirely thought through, and is of doubtful legality in the margins.

Support our journalism by subscribing to Scroll+ here. We welcome your comments at letters@scroll.in.
Sponsored Content BY 

Following a mountaineer as he reaches the summit of Mount Everest

Accounts from Vikas Dimri’s second attempt reveal the immense fortitude and strength needed to summit the Everest.

Vikas Dimri made a huge attempt last year to climb the Mount Everest. Fate had other plans. Thwarted by unfavourable weather at the last minute, he came so close and yet not close enough to say he was at the top. But that did not deter him. Vikas is back on the Everest trail now, and this time he’s sharing his experiences at every leg of the journey.

The Everest journey began from the Lukla airport, known for its dicey landing conditions. It reminded him of the failed expedition, but he still moved on to Namche Bazaar - the staging point for Everest expeditions - with a positive mind. Vikas let the wisdom of the mountains guide him as he battled doubt and memories of the previous expedition. In his words, the Everest taught him that, “To conquer our personal Everest, we need to drop all our unnecessary baggage, be it physical or mental or even emotional”.

Vikas used a ‘descent for ascent’ approach to acclimatise. In this approach, mountaineers gain altitude during the day, but descend to catch some sleep. Acclimatising to such high altitudes is crucial as the lack of adequate oxygen can cause dizziness, nausea, headache and even muscle death. As Vikas prepared to scale the riskiest part of the climb - the unstable and continuously melting Khumbhu ice fall - he pondered over his journey so far.

His brother’s diagnosis of a heart condition in his youth was a wakeup call for the rather sedentary Vikas, and that is when he started focusing on his health more. For the first time in his life, he began to appreciate the power of nutrition and experimented with different diets and supplements for their health benefits. His quest for better health also motivated him to take up hiking, marathon running, squash and, eventually, a summit of the Everest.

Back in the Himalayas, after a string of sleepless nights, Vikas and his team ascended to Camp 2 (6,500m) as planned, and then descended to Base Camp for the basic luxuries - hot shower, hot lunch and essential supplements. Back up at Camp 2, the weather played spoiler again as a jet stream - a fast-flowing, narrow air current - moved right over the mountain. Wisdom from the mountains helped Vikas maintain perspective as they were required to descend 15km to Pheriche Valley. He accepted that “strength lies not merely in chasing the big dream, but also in...accepting that things could go wrong.”

At Camp 4 (8,000m), famously known as the death zone, Vikas caught a clear glimpse of the summit – his dream standing rather tall in front of him.

It was the 18th of May 2018 and Vikas finally reached the top. The top of his Everest…the top of Mount Everest!

Watch the video below to see actual moments from Vikas’ climb.

Play

Vikas credits his strength to dedication, exercise and a healthy diet. He credits dietary supplements for helping him sustain himself in the inhuman conditions on Mount Everest. On heights like these where the oxygen supply drops to 1/3rd the levels on the ground, the body requires 3 times the regular blood volume to pump the requisite amount of oxygen. He, thus, doesn’t embark on an expedition without double checking his supplements and uses Livogen as an aid to maintain adequate amounts of iron in his blood.

Livogen is proud to have supported Vikas Dimri on his ambitious quest and salutes his spirit. To read more about the benefits of iron, see here. To read Vikas Dimri’s account of his expedition, click here.

This article was produced by the Scroll marketing team on behalf of Livogen and not by the Scroll editorial team.