buying costly cell phones could atract the tax man

Buying that swanky new cell phone just got a little bit tricky. The income Tax department is watching you closely If you are going to spend as little as Rs. 25,000 they may come after you.
In a startling development last week, the department went across Mumbai’s retails stores and physical checked their ledgers. This was done to find out who the “big spenders” were and how they managed to get the money to splurge. The information was matched with the spender’s tax returns and notices were sent to over 400 people.
This is a retrogressive return to the days of the tax raid raj. The move has the potential of having a dampening effect on the economy. India’s economic growth is driven by a healthy 29 percent saving rate that drives domestic consumption, unlike China, which depends on consumption from aboard. This is a major advantage for the country and the latest move could hurt domestic consumption.
Even tax collection could suffer from this move. Taxes such as VAT contribute a far larger share in the government’s revenue collection when compared to Income tax.
. If an atmosphere of fear is created, it is sure to inhibit expenditure and in turn revenue from goods sold. As a result the income tax department may gain but the revenue from other departments such as excise and VAT will show a slowdown. The imbalance in revenue collection negates the logic of going after individuals. It will ultimately hurt the government more than consumer.
While it is no one argument that tax evasion goes unchecked, these intrusive methods are not the right manner to go about it. This constitutes a regime of fear where a consumer will have to think twice before making even innocuous purchases.
The move is likely to encourage the use of cash instead of credit cards. The consumer will easily by pass the tax effort by spending cash and this will only drive up the share of the parallel economy. The income tax department has other pressing problems. It has billions of rupees locked in t\legal disputes and the income tax return process too is in need of further simplification. By going after so called big spenders it is merely creating a problem rather than having a solution. The department will do well to rethink its position on this issue since consequences are a slowdown of the economy which India can ill afford.