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Dhan ki Baat: A retired tax official talks about the life of a taxman

Tax officials not only face steep targets but are also hemmed in by political influence, a slow legal system, an under-staffed department and tax evaders who are getting smarter.

February 19, 2020 / 08:13 PM IST

With the economy showing no signs of a recovery and tax collections way short of the annual target, taxmen seem to be under as much pressure as tax evaders.

To know what it is like to be a taxman, I met up with a senior tax official who recently retired from the department after thirty years of service. Let's call him J.

J lives in his modest two-bedroom apartment in a Mumbai suburb. He appears quite fit for someone his age, and his manner of speaking—going into details—gives him a professorial air. And the V-necked pullover he is wearing only seems to reinforce that image.

I mention it to him. J laughs.

“My assessees never saw me that way, though I gave quite a few of them some life lessons on the need to pay taxes honestly,” he says.

Close

J takes pride in the fact that he was feared because of his clean record at work. “If you are hard to buy off, you are a nuisance to many, including some of your superiors,” he says.

I ask him about the constant refrain of I-T officials about the unreasonable pressure to meet targets.

“The last three months of the fiscal year, trust me, is always a nightmare. Every officer--top to bottom--is under pressure to meet the targets, often unrealistic ones,” says J.

“Why do those in power never bother to understand that taxmen aren’t magicians and revenue collections can improve only if the economy does well?” J asks, somewhat irritated.

But not having targets too could be problematic, I reply.

“You are right. In a way, targets are good as they provide a direction. But targets also need to be realistic. Taxmen are demonised as people who can squeeze water out of a stone. But in a difficult business environment, officers should not be penalised for failing to meet targets,” J says.

J is relieved that he doesn’t have to spend sleepless nights anymore worrying about meeting targets, but his ex-colleagues still serving in the department are not as fortunate.

The personal income tax collection target for this financial year is Rs 5.59 lakh crore. Till December, Rs 3.18 lakh crore was mopped up. That leaves the Income Tax department with the task of collecting Rs 2.41 lakh crore in three months.

That is a daunting task in an economy that is expected to grow at the slowest pace in 11 years this fiscal, and where business confidence is at a six-year low.

With a grin on his face--for the first time since our conversation began, J recalls how some of his colleagues used to fake collections with a tacit understanding with certain assessees.

“I knew officers who would make arrangements with parties to meet targets and make their bosses happy. The understanding is that refunds will be made later,” J says.

“When a case is passed to an officer, the standard procedure is that he must investigate, detect and, ultimately, make collections. Investigations must be done, but it isn’t necessary that every case leads to detection of tax evasion,” he adds.

How do you zero in on the entities suspected of not paying taxes, I ask.

“We do our own homework, by tracking the spending pattern and the income disclosed in tax filings. Those could be anything—foreign vacations, lavish weddings, or some luxury purchases that do not tally with your source of income. But we also get tip-offs from business rivals, disgruntled employees and even people I would call 'tax bounty hunters',” he discloses.

J recounts an incident many years ago where the department suspected a popular suburb restaurant of under-reporting income.

“They were showing a daily income which we knew was impossible to sustain the operations. Initially, we sent some junior staff to visit the restaurant at certain hours and on certain days to see how the business was faring. Once we were certain that the actual business was much higher than what the owner had disclosed, we raided him, but without any drama. An official sat next to the cashier for the whole day. We found that the collection was five times what he had been mentioning in his filings. The owner contested our finding saying that collections on some days were higher than usual. We told him that we were happy to sit next to his cashier for as many days as was required for us to show that he had been faking his income. The owner feared that if collections on the following days were even higher, he would face a bigger problem. He settled the case soon enough."

The ‘power’ play

A problem that most upright tax officers face is pressure from higher-ups to go slow on some cases or drop others altogether.

“How many times have you encountered political interference in your work?,” I ask.

“Countless times. No politician or powerful businessman minister directly calls up a tax officer,” J says, after a long pause. “They always get someone else to do that job. So it could be a sweetener or a subtle threat.”

He recalls an incident. “Once, when I was an assistant commissioner with corporate charge, one officer detected something; I remember it was a legal issue. The businessman was connected to one of the top ministers in the government. The minister’s secretary called on my direct landline. I was prepared for the call, but since the secretary had never spoken to me before, I lied to him that I was not on my seat and told him to call later,” he says.

“After keeping the phone down, I immediately called the officer handling the file and told him to complete the assessment in two hours. When the secretary called again later, I told him that I was helpless since the officer had already signed the order and that matter was for the appellate body to decide now,” J says.

Advice to the younger lot

A tax officer, who spends too much time in office, doesn’t learn much, says J.

“I would always tell my colleagues to go out and study the assessees'  business segment. When you come back, you would have got a better perspective on the case. The figures in front of you will make more sense,” he says.

“Also, tax officers need to prioritise what to chase and what not to from the hundreds of cases that come up before them. Given limited resources, there are only so many cases that one can take up for scrutiny. A cost-benefit analysis of the collection is a must before you decide,” J says, adding that the computerisation of documents have made life a lot easier for a tax officer today than it was about a decade back.

Threats, adventure

“Have you ever been threatened for doing your job?,” I ask.

“Yes, from certain assessees. I remember one case involving a diamond merchant. After, nearly 2 years of investigation, I found out that he was a benami for another big businessman. I started getting threatening calls, which basically said--you finished me, I will finish you.”

“Then what happened?”

“He somehow lost interest in me after a while.”

J recalls how he had to raid tax cheats at odd hours of the day, based on tip-offs.

“It all depends on the profile of the assessee. If we have specific information on delivery of cash at midnight, we have to be there at the time of the delivery,” J says.

“Once, we went to search a wealthy businessman’s place at Malabar Hill. That was a small building open from three sides to the road. We were just 3-4 people and there were about 13 family members including women. We started asking them to gather at one place. They did that," he says.

"But when we were going through the documents, one of us noticed that one or the other female members of the family would slip away for a while. We had a lady officer among us. She followed one of the family members and saw that she was throwing packets out of the house, and those packets would be collected by somebody waiting down."

"We threatened the family that we were going to file an FIR against them for destruction of evidence unless they handed us the packets. One of us then rang the police station. Of course, we would not have been able to do much, but the family panicked, and soon the man who had taken the packets showed up at the door. Those turned out to be important documents,” J adds.

The challenges

One big challenge, the former tax officer says, is the tardy pace of the legal system.

“Even if an officer detects tax evasion, the evader will go to court and this goes on for years. By then, the officer is gone and the new officers lose interest in the case because they have other cases on their hand. This often results in the evaders winning the case. Emboldened by the win, he will evade more taxes next year,” J says.

The other problem is of the department being understaffed.

“If you need better collections, having a bigger staff to crack down on evaders is worth the investment. Also, you need to hire officers with specialized skills because the nature of the evasion too is changing,” J said.

“So what’s the way out?

“Well, you have to make a solid case in the courts and judiciary must ensure swift resolution. Hopefully, that should deter people from trying to game the system.”

I conclude the conversation, thanking J and wishing him well.
Dinesh Unnikrishnan
first published: Feb 19, 2020 05:17 pm

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