And the taxman is smacking his lips

And the taxman is smacking his lips
Pranati Mehra

MUMBAI, JANUARY 3: Central Board of Direct Taxes (CBDT) chief Ravi Kant is beaming at today's record hike in the sensex, smelling a huge tax bonanza in it. ``Our circle chiefs are alert to this, and will examine broker transactions to ensure we get commensurate taxes from the capital gains made.'' I hope it stays this way, says Ravi Kant.

While Ravi Kant isn't willing to put a number to the extra tax collections -- for every potential gain, there's a potential loss, though not necessarily to the same person -- the numbers are truly mindboggling. Between January 1999 and today, the market capitalisation of shares have gone up from Rs 4,00,000 crore to Rs 10,00,000 crore. Let's assume, and this is clearly just an assumption, that Rs 100,000 crore of this represents capital gains. Then the tax that could accrue to the government from just this category is a mindboggling Rs 30,000 crore, a figure which is a little more than the total tax collected from individuals today.

Ravi Kant's sleuths are already on thejob of tracking down brokers' transactions, and matching these with taxes declared by firms and their clients -- today with all transactions conducted through cheques, and most shares already dematted, tracking transactions takes just a few days at most.

According to K V M Pai, chief commissioner of Circle 2 in Mumbai, `surveys' conducted by them last month itself revealed three cases of concealment of income by broking firms and yielded higher taxes of Rs 10.6 crore. ``There is a definite correlation, but it's difficult to arrive at a thumb rule, between higher market cap and higher taxes. At the same time, there's a huge concealment of taxes by booking profits in benami names'', says Pai.

In one case, says Pai, a firm showed its income last year as Rs 22,790 but this year's survey discovered this to be Rs 1.04 crore for the current year; another firm's income was discovered to be Rs 5.72 crore but it had not filed returns for the past 3 years.

With the tax sleuths clearly charged up, shady brokersbeware.