Outsourcing without Payment

[MAHESH MATHUR]

The State has a right to levy tax on its residents and have to have a machinery to collect the same. However it is seen that apart from paying taxes which are levied, the businessmen and professionals are burdened to share the work of collection on behalf of the government without any payment. It started with levy of Sales Tax and collection through traders. It has now spread to so many levies like Central Sales Tax, Tax on Works Contracts, Professional Tax, Excise duty, Income Tax deductions at source on salary, rent, contractors, sub-contractors, insurance, commission, brokerage and many more sources of income.

Since 1994 the collection of tax has further extended to provider of services i.e Service Tax. The list of provider of services is being enlarged year after year. Thus it may be noticed that the government has found a novel method of collection of taxes without enlarging its machinery and thus saving for itself cost of employing staff members, hiring office place and other connected expenditure thereto.

It may be bearable for medium and large size companies to provide this support and bear the incidental expenses connected therewith like employing extra staff and engaging professionals to discharge their responsibility. It is becoming difficult for small scale industries, traders and professionals to provide such support services which entails not only extra expenditure for employing extra staff members and professionals but also payment of interest and penalties for defaults which are committed due to ignorance or wrong interpretations and sometimes shortage of funds, no proper staff and not profitable businesses.

The law of tax deducted at source is made so cumbersome that it applies not only on payment but also on crediting the due amount in the books whichever date falls first. Due to yearly closing of books of accounts, the outstanding payments have to be accounted for. Payments may not have been made due to shortage of funds but the State expects that for booking the expenditure at the end of the year tax dues thereon must be paid. For not raising funds to pay the same there are levies of interest and penalties.

Since 1st April,2005 the law has become further stringent / draconian in as much as if Tax is not deducted or short deducted, the entire expenditure on which tax has to be deducted is disallowed and allowed only in the year in which Tax which ought to have been deducted is paid. Imagine a case of, Works Contractor for a painting job of Rs.1 crore which is completed in one financial year. It has the cost break up consisting of Material Cost 15%, Labour Cost 75% and Profit Margin of 10%. For labour he hires workers on Contract basis. In normal course, he has to pay tax on Rs.10 lacs as his income. Now suppose, he could not deduct 1% tax on labour contract bills. The consequence thereof is that the entire labour expense of Rs.75 lacs will be disallowed and he will be liable to pay tax on Notional Taxable Income of Rs.85 lacs for that year. Apart from that he is liable to pay Interest on Tax not paid plus penalty for under estimation of Taxable Income for that year. Besides that he will be further liable to deposit the amount not deducted in time with Interest and Penalty. Further Penalties are not restricted for failure to deduct and pay but also for not filing Quarterly Statements in respect of Tax Deducted at Source.

It is not known under which provisions of the Constitution of India the Government could impose such responsibility on all businessmen and professionals irrespective of their capacity to carry out such responsibility and that too without any monetary consideration. Newly formed companies, firms and individuals starting businesses are loaded with these responsibilities before they are able to establish their own businesses. Loss making businessmen and professionals suffering losses find it difficult to carry out these erroneous responsibilities.

There is no provision/machinery to take care for such businessmen and professionals. Moreover Provisions for disallowances, interest and penalty are very harsh and are cause of irritation, anguish and helplessness and are reminder of colonial regimes.

It raises a question

1) CAN GOVT. FORCE US TO WORK?

2) IS IT NOT HUMAN RIGHTS VIOLATION UNDER THE CONSTITUTION?

It may be interesting to note that under the Constitution if a Law is not obeyed and punishment is provided for by way of imprisonment and the prisoner is made to work, there is a provision to pay him for his work / service though it is a part of his punishment duties.