Operation Clean Money

The Income Tax Department has initiated Operation Clean Money to investigate tax evaders. It has also launched a website to facilitate the operation.

Why this operation?

The Operation Clean Money has been designed by the Central Board of Direct Taxes. There were large cash deposits during 9^th November to 30^th December 2016 and this operation will aim at verifying these deposits. Around 18 lakh people have been identified who made large cash deposits and purchases which is not according to the tax payer’s profile

How will the operation be useful?

The online verification of the transactions would decrease the compliance cost for the tax payers. The portal can be used by the PAN holders to view the information. Explanation about tax payment can be submitted online without having to visit the income tax office. The tax payers would also have reminders via SMS and emails for submission of online responses to the portal.

The IT department can use the data analytics to select cases for verification. Additional information can also be requested. The tax payers are to submit their response within 10 days which would be scrutinized against the available information within the department. If the response is found justified or under the Pradhan Mantri Garib Kalyan Yojna, the verification will be closed.

Analysis

India has been facing a massive problem of tax evasion. According to the income tax data, in the year 2013, only 1% of the population paid tax. Demonetisation that was conducted by the government in 2016, found that an estimated 3-4 lakh crore cash was unaccounted to avoid tax. In India Tax Amnesty Scheme started after independence. In 1951 first Voluntary Disclosure Scheme called Tyagi scheme was announced that led to declaration of unaccounted funds. However, it managed to collect only 11 crore out of the disclosed 70 crore worth of income. It failed because the taxpayers were suspicious about the assurances of immunity.

 In 1997 the government launched voluntary disclosure of income schemes that made reluctant tax payer to reveal their income and pay a higher rate of tax. However, it failed to meet the objectives of the government and the Supreme Court asked to stop offering the scheme as it gave tax evaders an opportunity to get away by paying a penalty. Tax evasion is also a problem in Greece where up to €30 billion per year goes uncollected. The government proposed a tax card in 2011 called Forokartta which would facilitate the collection of receipts for purchases and avoid tax evasion. Also, US had a tax gap of $450 to $500 billion and it initiated a Taxpayer Compliance Measurement Program to measure tax gap. However, it was discontinued due to its intrusiveness. 

Assessment

This is the first time a website has been created for verifications of transactions to avoid tax evasion. This scheme will be cost effective and time saving as all verification will be done electronically. It would also allow the Income Tax department to cross check on the transactions made by a taxpayer to prevent him from escaping tax. At the same time the government should inculcate other measures to curb tax evasion. Reducing tax rates, simplification of tax laws can improve the Indian tax compliance. There should be a transparent and less discriminatory administrative system. Further there is a need to educate people about tax laws so that they take it as their duty to pay taxes. Also, the government should ensure that the taxes paid by the citizens are utilised efficiently for public services so that it doesn’t dissuade the people from paying it.