Tax Terrorism is a term coined by Arun Jaitley, who was then Vodafone's advocate. It means putting illegal and extra legal pressure on the taxpayer to extract more tax from a honest taxpayer. Reasons that encourage tax terrorism are that Indian tax laws are oriented towards maximum collection, retrospective tax laws, and imposition of tax targets on tax inspectors. Tax terrorism effects the growth rate of a nation, ease of doing business ranking, FDI & FII investment will decrease.
The term ‘tax terrorism’ was extensively used by Modi to describe the adversarial approach adopted by tax authorities under the UPA. “The tax terrorism prevailing in the country is dangerous. One can’t run the government by thinking that everyone is a thief,” he said, addressing members of FICCI. Subramaniam Swamy said as much as ₹31 per litre out of petrol prices of ₹75 at the bunk flowed into the government’s coffers as taxes. But Indian taxmen lost a case with Vodafone in Jan 2012 (capital gains tax on an offshore transaction) in the supreme court and they amended tax laws with retrospective effect, making Vodafone liable for a tax on a past transaction.
If the government of the day is short of cash, it can delay your refunds, open up your old returns for scrutiny or extract in myriad other ways. Dealing with tax authorities, if they do decide to ‘terrorise’ you, isn’t easy. You will need to hire an expert and to convince the assessing officer of your arguments. You can also get into trouble if you delay payments or forget to pay your taxes on time. While the taxman may take his time with your refunds for many reasons, if you delay paying your annual taxes, you not only have to pay interest at 1 per cent per month on the tax due, you can also be asked to cough up a penalty of another 1 per cent per month totaling up to 24 per cent per year.
If you’re in India, evading taxes is downright foolish. But paying them is no guarantee that you will certainly sleep well at nights.
On Jul 1, 2017, while rolling out GST, PM Modi described GST as the 'good and simple tax', a radical step towards the country's transformation into a common market, which would help businesspersons putting an end to tax terrorism and inspector raj. However, President Pranab Mukherjee cautioned that "GST is a disruptive change. When a change of this magnitude is undertaken, however positive it may be, there are bound to be some teething troubles and difficulties in the initial stages. We will have to solve these with understanding and speed to ensure that it does not impact the growth momentum of the economy," Mukherjee added.
On Nov 7, 2017, former prime minister Manmohan Singh alleged that demonetisation and roll out of the Goods and Services Tax (GST) have sown a "deep-rooted fear of tax terrorism" among the business community. At a time when the economy has slowed down considerably, despite favourable global macroeconomic conditions, the fear of tax terrorism has eroded the confidence of businesses to invest.
Veda Vyasa said in the Mahabharata that a king should collect taxes
like a bee collects nectar from flowers, painlessly
Today, we see taxmen are raiding black money hoarders and tax evaders ruthlessly every day. Needless to say that raids will only end up in increased political and bureaucratic corruption and not increased revenues to government. Enforcing tax compliance was not the real reason for this tax terrorism. It is the failure of Modi & Jaitley's schemes like IDS, Demonetisation, GST Roll out etc resulting in severe cash crunch faced by Government. Revengeful Modi resorting to tax terrorism wants to demonstrate to the world that he means business and all his schemes are in fact paying off with delay. But what he is failing to gauge is that sentiment getting destroyed, informal sector decimated, agrarian distress, construction paralyzed, empty coffers, joblessness, dwindling exports, uncontrolled imports and rising oil prices will have its telling effect on economy sooner or later. How long consumption driven economy will survive on a single service sector? Ask any economist, he will tell you that the only way to boost economy is by increasing government spending on infrastructure thus creating large scale construction jobs funding it by widening fiscal space even if it requires increasing fiscal deficit. Modi is just not doing that and result in near future is anybody's guess.
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