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Last week, the year’s second voluntary income disclosure scheme was approved by Lok Sabha and operationalised.
Along with it were reports of bankers being sacked or suspended for complicity in attempts to launder unaccounted money, and an invitation to citizens to lodge anonymous complaints if they notice suspicious activity. The weeks following demonetisation have been accompanied by growing intrusiveness of the state. Big government seems to be back with a vengeance. But India’s earlier experiment in this area led to an inspector raj and created opportunities for corruption to flourish. It must not be repeated.

A legitimate expectation of demonetisa tion was that it would leave trails which could be used to bring tax evaders to book.

This was in line with a series of steps taken over the last decade to create an audit trail in myriad areas to allow tax authorities to mine data. This is a sound way of widening the tax net. In addition to tax authorities, agencies such as the Financial Intelligence Unit processed information related to suspicious financial transactions. India was switching to a more sophisticated way of enforcing tax rules.

It is important that government now build upon a decade’s work.Threats of tax raids and allowing bureaucrats to exercise excessive power will be counterproductive. The return of an inspector raj will have a chilling effect on economic activity . It will only prolong the ongoing economic disruption. Government must send the right message to all economic agents. Legitimate economic activity ought to be encouraged and needless impediments removed.Exhorting people to use digital modes of payment is not enough.Different arms of the government should make better use of technology to do their work.

(Courtesy: The Times of India, Dec 19, 2016)