This is a comment on the revised reports of Vijay Kelkar on direct and indirect taxes. It was a pity Kelkar got so little time for his reports. This column was published in Business Standard of 18 February 2003.
A TALE OF TWO SERVICES
It was clever of Vijay Kelkar to produce revised reports
of his task forces on direct and indirect taxes. Everyone who jumped and
trampled on the interim reports thought that there could be little new in the
final ones. So, just as quickly as the debate had flared up with the
publication of the interim reports, it died down with the publication of the
final ones. The only person I know who has read both versions is Sukumar
Mukhopadhyay, that indefatigable devourer of official verbiage. And I, who do
it to chastise my soul.
When I was in the government, I
noticed curious differences between the various services. The members of the
Indian Administrative Service were focused, selfish, quick, confident, clever
and arrogant. They were generally ignorant and proud of it. I recently met a
member of the tribe who had left the service. He told me that knowledge
management in the government was an oxymoron. If an officer, on leaving his
post, tried to convey to others what he had learnt, they thought he was being
cocky and showing off. And his successor thought he had innate genius and could
learn nothing from his predecessor. I would not have put it so strongly, but
coming as it does from the horse’s – or should I say the clever dog’s – mouth,
the observation should be given due weight.
Officers of the Central Board of
Direct Taxes (CBDT) were generally gentlemen, quiet, sober, amenable to reason.
Some may think that this is unduly complimentary. I myself have had unhappy
experiences as a taxpayer with income tax officers, and have heard some
horrific stories. But by and large, this revenue service consists of
middle-class characters who bring a packed lunch and who go back to their wives
when they leave office.
Members and officers of the
Central Board of Excise and Customs were quiet, very quiet. But some of them
were hard, unscrupulous, sometimes extremely dishonest. If you want to know
what they are not, you should meet the aforesaid Sukumar Mukhopadhyay: he is
painfully honest, and he cannot stop talking. One officer published a book of
poetry, put some outrageous price on it – something like Rs 1500 for a
hundred-page pamphlet – and got his subordinates to sell thousands of copies to
hapless taxpayers. Another had a lawyer wife; the higher he went, the more her
practice flourished. A third got an expensive flat in Bombay on retirement as a
present from an admirer in industry. A taxpayer once rang me up. He exported
expensive garments, made of silk and beautifully tailored, to expensive stores
abroad like Harrods. The customs accused him of overinvoicing: how could a
shirt be worth Rs 1000? They took the shirt to a salesgirl in Cottage
Industries Emporium, and asked her to value it. She gave them the answer they
wanted. The officer who allowed explosives to be smuggled in for the Bombay
blasts of 1993 exonerated himself by saying he thought it was only gold – and
his claim was supported by the fact that the bribe was appropriate to gold.
There is a striking contrast
between Kelkar’s two reports. The one on direct taxes does not give much space
to tax administration; it is really focused on the tax structure – the rates
and the concessions. It more or less assumes that the CBDT works fairly well,
and gets quickly down to the job of the taxes. The report on indirect taxes, on
the other hand, is mostly about tax administration. To a cynical mind like
mine, it gave the impression that plenty was wrong with excise and customs, and
much needed to be done to fix them. But the remedies it gave were, to my mind,
inadequate and poorly thought out.
It may be that Kelkar was more
interested in direct than in indirect taxes; we all income taxpayers are. We
have to pay income tax every quarter, whereas we might pay customs duty a
couple of times in our lifetime, and we may never have to deal with an excise
officer. Or it may be that Kelkar had better or more committed economists on
his direct taxes team: he had Urjit Patel and Omkar Goswami (Ashok Lahiri was
on both the teams, and cannot be responsible for either). But most likely,
excise and customs are a more unfair, arbitrary, oppressive service, and Kelkar
got more complaints about them. One learns quite a bit about their quaint
practices from the report on indirect taxes.
For instance, firms have to pay
in excise every fortnight. If they pay less than their usual amount, they start
getting phone calls from excise officers: why have you paid less? In other
words, if you are producing something, you are not allowed to do badly in
business. And if you do, the excise men will still insist that you pay up as if
you are doing well.
Another practice that Kelkar
lauds and I find most shady is that they do not tax you on the price you
actually get. They make you print a Maximum Retail Price (MRP) on the carton,
and charge you excise on it, whether you got it or not. Thus they convert an ad
valorem duty into a specific one. If you are doing well, you pay a certain
excise duty; if you do badly, you pay the same. Business is risky enough;
excise makes it more risky.
I never knew that customs collect
import duty in cash. I would have thought that with their revenue of a few
thousand crores, they would find cheques more convenient. But cheques can
bounce. Cash never bounces; and as it pours in, some sticks. Some years ago the
CBI raided Delhi airport customs, and collected a few lakhs from the drawers of
the customs officers’ tables – just a few hours’ take.
I have earlier written about the
Unjust Enrichment Act, the law that is designed to make customs and excise
officers extremely and unjustly rich. If a firm is overcharged tax, goes to
court and wins, it cannot get back the duty it has been overcharged with: the
collections go to a Consumer Welfare Fund which ministers of consumer affairs
can conveniently raid. So all an excise officer has to do is to tell an
industrialist, “I am going to overcharge you. You can go to court, but you will
never get your money back. Instead of that, why not just give me a million and
settle it quietly?” This is only one of the many tricks available to excise and
customs officers. To know more, read Kelkar. But there is much he does not tell
you.
