The Delhi government’s recent move to impose a consumption tax on goods and services has been marred by allegations of fraud and corruption. The state’s new tax enforcement agency is being accused of running a racket that involves demanding bribes from traders to evade paying the tax.
The situation has prompted the Indian Supreme Court to take notice, with a bench headed by Chief Justice SA Bobde agreeing to hear a plea seeking an investigation into the tax revenue department’s functioning. The plea was filed by a Delhi-based advocate, Arvind Tewari, who has cited media reports and whistleblowers’ accounts to highlight the scale of the malpractice.
In February, the state government introduced the Delhi Value Added Tax (DVAT) Amendment Bill, 2021, which received assent from Lieutenant Governor Anil Baijal in March. The amendment extended the DVAT to certain goods supplied by e-commerce operators and reduced rates for certain products such as biscuits, toiletries, and furniture.
However, traders’ associations have claimed that the new tax regime has led to arbitrary assessments, harassment by tax officials, and legal disputes. They say that the state’s revenue department is using the DVAT to extract undue payments by harassing and threatening traders.
Recently, Telangana MP K Kavitha also raised the issue in Parliament, demanding action against the illegal practices. The former MP’s representation stated that the Delhi police had seized documents exposing the fake transactions and manipulation of records to avoid tax payment.
Kavitha has also been summoned by the Enforcement Directorate (ED) on March 24, as part of an investigation into a case of money laundering. The ED is looking into the allegations of tax evasion and bribery in connection with the DVAT, with several people from the trade and transport sectors being questioned in recent weeks.
The allegations of tax evasion have highlighted the larger problem of corruption in the tax system, which is seen as a significant drain on the national economy. According to estimates, India loses close to $2.5 billion every year due to corruption in tax administration.
The DVAT row is not the only example of how greed and corruption are undermining the country’s efforts to create a fair and equitable tax system. The Goods and Services Tax (GST), which is supposed to bring uniformity in tax rates across the country, has also been plagued by a slew of issues, including blunt classification of goods, complicated procedures, and an overstretched administration.
Tax experts say that India needs to implement structural reforms to tackle corruption effectively. This includes reducing the number of tax rates, introducing simpler and streamlined tax codes, and creating an independent tax ombudsman to handle complaints.
The government also needs to invest more in technology to automate the tax assessment process, which currently involves extensive manual intervention and visits by officials. A digital platform that integrates, standardizes, and automates various tax processes will reduce corruption and increase transparency in the system.
Besides, the government must improve training and accountability of tax officials, who are often perceived as unapproachable and exploitative. Officials must be made aware of the seriousness of the issue and be held accountable for any allegations of wrongdoing.
Finally, the government must work to create a culture of compliance by incentivizing traders to pay taxes on time and punishing non-compliance strictly. This can be achieved by reducing tax rates, simplifying the tax compliance process, and creating a robust dispute resolution mechanism.
In conclusion, the Delhi Vat row is a stark reminder of how corruption and greed can undermine India’s tax system’s objectives. The government needs to take decisive action to tackle the problem by introducing structural reforms, investing in technology, improving accountability and training of officials, and creating a culture of compliance. India’s economic future depends on its ability to create a fair and equitable tax system that promotes transparency, fairness, and economic growth.