Income Tax Data Shows Shocking Levels Of Tax Evasion And Fraud In India

Posted on May 13, 2016 in Business and Economy, Staff Picks

By Nissim Mannathukkaren:

special-26-Thrasymachus: When there is an income tax, the just man will pay more and the unjust less on the same amount of income… I tell you, Socrates, injustice—
when practised on a large enough scale—has more strength, freedom and mastery than justice. – Plato, The Republic.

When the government released income tax data for the first time a few days ago, it gave us an opportunity to study one of the vital areas of our economic life, hitherto hidden from public scrutiny. It expectedly generated commentary on the implications of the data for the economy and so on. But what it has not generated is a moral and political reflection on the data.

If we consider the data from the latter point of view, two things emerge. One: the data cannot be termed anything but shocking (the fact that it has not occasioned any moral revulsion or critical political questions is precisely part of a larger problem). And two: more, importantly, the data gives the lie, in a searing fashion, to the recent discourse of nationalism, sponsored by the ruling party and the government, and amplified by the elite classes.

How is it that in the year 2012-13, there were, believe it or not, three individuals who paid a tax of Rs. 100 crore or more? In the same year, there were 46 dollar billionaires in India who were collectively worth $ 176 billion— Rs. 11.61 lakh crores; that is ten times more than the Rs. 1.14 lakh crores collected from all the individual income tax payers in the country! How is it that there were only 18,358 individuals who had an income over Rs. 1 crore, and only 10 lakh persons with incomes over Rs. 10 lakhs? This is when, as a report put it, in 2011-12, four luxury carmakers alone sold 25,645 vehicles with an average price of Rs. 40 lakhs, and in Mumbai alone some 1880 luxury apartments worth Rs. 10-100 crore were in the market for sale.

In total, there were 2.87 crore individual income tax returns in 2012-13 (out of a population of 125 crores). 1.6 crores of this did not actually pay any tax, so, effectively, income taxpayers amounted to 1 percent! To give a comparative sense, Canada (of course, a G8 country), had the same—2.88 crore returns, out of a population of 3.5 crores!

Amazingly, the tax-GDP ratio has remained almost constant even after two and half decades of spectacular growth and wealth creation in which the GDP increased 4.5 times (the recent social media buzz was that India is now the fastest growing economy in the world, overtaking even China). In the mid-1990s, there were only 2 dollar billionaires with a combined worth of $ 3.2 billion. But in 2016, there were 111 billionaires with a net worth of $ 308 billion—Rs. 20.48 lakh crores.

The staggering statistics are evidence of shocking levels of tax evasion, fraud and also legally sanctioned tax breaks on income and wealth favouring the richest classes. What does this mean for the discourse of nation and nationalism? What kind of a nation are we talking about when vast numbers of its middle and upper classes, the so-called wealth creators, are the very sections that eviscerate the economic vitals of the nation by not contributing to the national cause?

The “drain of wealth” theory was one of the greatest economic and moral weapons of the Indian nationalists against the colonial rule. Ironically, the nation is subject to the same drain of wealth now. Around $450 billion has gone out of India, illegally, from 2002. In the same period, the FDI inflows into India were around $ 150 billion. As Frantz Fanon, the philosopher and anti-colonial revolutionary, noted many decades ago, in the wake of the independence from colonial rule, the colonial exploiter is replaced by the native exploiter. Nationalism thus becomes an “empty shell, a crude and fragile travesty of what it might have been.”

The current nationalist/anti-nationalist binary is the most potent example of this travesty. An anti-national is one who refuses to chant “Bharat Mata Ki Jai,” not the one who refuses to pay tax. One can indulge in the grossest forms of economic corruption and participate in shoring up an exploitative economic order, but that does not make one an anti-nationalist. As economists have shown, India is an extreme case when it comes to relying overwhelmingly on indirect taxes, with its catastrophic consequences for the poor, unlike the developed countries, which rely overwhelmingly on direct taxes on income and wealth.

Why any of this does not cause any moral outrage is because nationalism has been reduced to a symbolic/cultural entity unyoked from its material underpinnings. That is why we see the exaggerated and virulent battles around the emotive idea of the nation, rather than its material organisation. While the Prime Minister of Iceland resigns over his name figuring in the Panama Papers, there is hardly a ripple in India regarding the Indian names in them. While the “nationalist” government is proactive in jailing “seditious” students, it is hardly serious about investigating the 1200 powerful Indians in the Swiss Leaks. As Fanon would have put it, it “provides nationalism alone as food for the masses.”

The scholar Benedict Anderson had shown that the nation is conceived as a community; that is, despite the huge disparities between people within the nation, it is imagined as a comradeship. As he puts it, “ultimately it is this fraternity that makes it possible, over the past two centuries, for so many millions of people, not so much to kill, as willingly to die for such limited imaginings.”
In the India of the present, the burden of such sacrifices is exclusively placed on the marginalised and the oppressed castes and classes, while the powerful and the wealthy, leave alone sacrificing for the nation, do not even pay what is simply due from them.

This is the conceit of nationalism that no one who profits from it wants to address. By joining the circus supposedly exposing corruption perpetrated by politicians, the privileged conveniently ignore their own participation in the economic fraud perpetrated on the nation. Their rapturous singing of the national anthem, wittingly or unwittingly, becomes a mask. Evading taxes is not an aberration; it is a mundane activity. If “no taxation without representation,” was the rallying crying of the American Revolution, in India there is representation without taxation.

Thrasymachus, in his dialogue with Socrates, asserts that “justice really serves the interest of the ruler, the one who is stronger, at the expense of the weaker.” What is astonishing is that his cynical view of Athens 2500 years ago is equally valid for the India of the present. While releasing the tax data, Prime Minister Modi said that it should “lead to enhanced insights for policy making on taxation.” What did he not say was that it was a scathing commentary on the nation.

Unless the cultural idea of the nation as comradeship and fraternity is complemented by material and economic arrangements that realise this, the nation will remain only in name. It will be Frantz Fanon’s empty shell.

This article was originally published here.