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Tax amnesty fails

AFTER two extensions and almost eight months of negotiations, the time has come for the government to act on the `dead` in `deadline` for its tax amnesty scheme, which it would prefer to call a `Voluntary Tax Compliance Scheme` The finance minister had optimistically harboured the hope of netting almost one million new taxpayers as a result of this scheme, coupled with a tax on bank transactions of non-filers. Yet today, as the second deadline expires, the total number of traders who have availed of its provisions is only slightly above 5,000. A more dismal showing would be difficult to find. Leaders of the trader community argue that netting one million traders can take many months and the scheme should be extended till June 30, the end of the fiscal year. But leaving such a long and indeterminate timeline open for so long will not help. It is apparent that the traders are treating the extensions as a permanent state of affairs, and their strategy is to indefinitely demand extensions until the government tires of the exercise. It is time to send a tough signal that this will not happen.

The continuous extensions have sent a distorted signal to the traders.

They have increasingly resorted to using cash and other innovative forms of promissory notes as a means to settle their transactions, in the hopes that the government will eventually yield in its determination to clamp down on them. This resort to cash can only last so long as the expectation persists that the government will soon tire of its resolve and repeal the withholding tax altogether. In reality though, the trader community cannot persist for very long outside the formal payments system and once they understand that the withholding tax is here to stay, and is only going to get steeper in days to come, their behaviour will change. The nature and volume of the transactions that take place in the trading economy cannot last for very long outside the banking system. It is time to signal the necessary resolve to this famously recalcitrant community that the good old days of accumulating wealth outside the tax net are over. The government should restore the withholding tax to 0.6pc of daily turnover above Rs50,000 on all bank transactions of non-filers once the new deadline expires, with a signal that the amount could rise to 1pc in the next budget.