The Department of Revenue is, to the ordinary Indian, the Ministry of Finance’s most visible arm. While the other ministry departments work with government (both states and center) institutions, provide them with the funds they need and influence policies, the department of revenue collects tax and duties from individuals and private companies. Armed with laws enacted over a century ago, it  polices tax evasion and illegal transactions and even oversees opium cultivation.
 

The British gave India its first income tax act. By the time the colonial government quelled the 1857 mutiny in the Bengal army, it had suffered huge losses and faced a severe financial crisis. The Income Tax Act, which came into force in 1860, was a way to recover those losses. Modeled on the British tax laws, the act classified incomes from landed property; profession and trade; securities, annuities and dividends; and salaries and pensions. The act remained in place for five years and yielded $300,000 in revenues. However, even after the act ceased to exist, taxation continued in one form or another. The British passed the Income Tax Act in 1923 and the Central Excise Act in 1944.

This laid the groundwork for a system to assess and collect revenue before independence. Offices were established and commissioners posted in various provinces. As incomes of the people and a manufacturing base grew, so did the challenges faced by the Department of Revenue. Internal audit systems were established and training of the personnel received renewed emphasis. The department's latest evolution is the computerization of records and e-payment of dues. This makes payment more convenient and reduces person-to-persons interactions, thereby lowering the chances of corruption.

The Department of Revenue is a conglomerate of a number of organizations: Central Board of Direct Taxes (CBDT), Central Board of Excise and Customs (CBEC), Central Economic Intelligence Bureau (CEIB), Finance Intelligence Unit (FIU-IND), National Institute of Public Finance Policy (NIPFP) and Central Bureau of Narcotics (CBN). Together, the CBDT and CBEC form the conduit for all the tax revenues essential to a functional government and effective governance. Both the organizations have boards manned by officers from the Indian Revenue Service, which oversee offices nationwide. Because both these organizations handle numerous, large transactions on behalf of the government, it becomes imperative to have a foolproof mechanism to check corruption within their ranks, tax evasions and for legal recourse. Members of the boards and bodies within the organizations have therefore been assigned different tasks such as internal audits, intelligence, investigation, etc. The CEIB, FIU-IND and NIPFP assist the CBDT and CBEC by providing information on suspect transactions and money laundering and helping frame effective policies on taxation. The CBN regulates the cultivation and processing of opium.

Autonomous/Attached Bodies
Central Bureau of Narcotics
Opium poppy is cultivated in three states — Madhya Pradesh, Uttar Pradesh and Rajasthan. The Central Bureau of Narcotics issues licenses, entitling farmers to the use of a certain area of their land to cultivate opium. The farmers are required to sell the harvest to the CBN, which sends it for drying or processing to one of the two government-owned opium and alkaloid factories. One of the factories is in Neemuch, Madhya Pradesh, and the other in Ghazipur, Uttar Pradesh. The dried opium is exported, while the processing yields alkaloids, which are then sold to the pharmaceutical industries. The bureau also imports alkaloids to make up for any shortfall in supply.

Central Revenues Control Laboratory

The CBEC seeks the assistance of its laboratories — Central Revenues Control Laboratory (New Delhi) and the laboratories that are part of the custom houses — when the chemical composition of substances is to be ascertained before fixing duties on them. Opium exported by the CBN is also certified by these laboratories.

Directorate of Enforcement
The Directorate of Enforcement is the body that monitors, investigates, arrests and prosecutes individuals suspected of wrongdoing under the Foreign Exchange Management Act, 1999; Prevention of Money Laundering Act, 2002; and the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA).

 

About 62% of the Rs. 77.80 crore ($14.3 million USD) 2011-12 budget for Department of Revenue headquarters was earmarked for the salaries of the employees. Offices expenses (10%) and foreign travel (5%) stood a distant second and third in terms of the budgeted amounts. The rest of the money goes to fund the attached bodies.
 

Black Money Flows Out of India
As Arab Spring swept the Middle East, activists in India took to the streets to campaign against government corruption. One of the issues that was raised during the protests was “black money,” off the books payment that usually ends up in tax havens such as Switzerland, whose banks, according to a whitepaper prepared by the Department of Revenue, reportedly hold Indian black money worth $1,269 billion USD). Ram Dev, a yoga guru with political ambitions, was particularly adamant that the black money be returned to India. The government has got its hands on lists of Indian account holders in LGT Bank of Liechtenstein and the Geneva branch of HSBC but has refused to make it public. Chief Election Commissioner SY Quraishi has also raised concerns over black money being used for funding election campaigns.  

Whitepaper on Black Money (Department of Revenue) (PDF)

There is no competition with Anna Hazare: Baba Ramdev (by Shekhar Gupta, Indian Express)

Can Accounting Norms Check Black Money in Polls (Moneylife)

Ponty Chadha Allegedly Tipped Off Before Raid
Days before the 2012 Uttar Pradesh elections, raids in the basement of a mall in NOIDA — a city that is part of the National Capital Region and adjoins Delhi —by CBDT officials received widespread news coverage. The officials had been tipped off about a cache of millions of rupees in the mall, which belonged to Ponty Chadha. The mall is one of the many properties and businesses Chadha owns. At the time of the raid, he was the sole distributor of liquor to the state of Uttar Pradesh. The billionaire businessman owned a chain of cinemas (Wave Cinemas) and a real estate company (Wave Infratech), among others. He is also said to be close to the former Chief Minister Mayawati and his businesses are patronized by her and her party, BSP (Bahujan Samajwadi Party). The raid, though, achieved little. Empty chests awaited the officials in the basement. Someone in the CBDT is said to have passed on information about the imminent raid to Chadha and his employees, who had been prepared for such as an event through mock drills, shipped the currency notes out of there to safety.

Five Big About Raids on Ponty Chadha (NDTV)

Tax The Rich More
One of the many different ideas proposed to shore up India's finances is increasing tax revenues. The ratio of tax revenues to GDP is believed to be 17%, less than the United States’ (24%), United Kingdom’s (34%) and Germany’s (37%). However, there are also concerns about instances of tax evasion rising once the rates go up. While some experts believe that India needs to expands its tax base -- at present only 3% of the population pays taxes --  others point out that the country's oligarchs aren't paying their fair share. Another suggestion to close this gap is the reintroducing estate tax, a levy on the value of assets of the wealthy when they die.

Firstpost Debates: Should the Rich Pay More Taxes (Firstpost) 

Rich Should Pay Higher Taxes In Poor India: Azim Premji  (NDTV)

Chidambaram Hints at Taxing Super-rich (Press Trust of India, Hindustan Times)

Should the Government Pass Amendment to Go After Corporate Tax Cheats?

In January 2012, with the fiscal deficit overshooting its estimate, the government began identifying tax evaders and recovering dues. In March it would have to present the budget. In the meantime it had to gather all the resources it could.

One of the government's biggest potential hauls were capital gains tax worth Rs. 1191.58 crore  ($2.19 billion USD) on Vodafone’s 2007 purchase of Hutchison Essar’s India operations. Vodafone, however, took the government to court. The government one in the Bombay High Court; the Supreme Court came Vodafone’s rescue. The basis of the apex court’s judgment was that neither of the companies was registered in India — Hutchison in the Cayman Islands and Vodafone in the Netherlands — and the deal was struck in Mauritius, and thus the government was not entitled to the tax. The court asked the Department of Revenue to return the deposit it had sought from the cell phone service giant, plus the interest. The department petitioned the Supreme Court seeking a review of the judgment but the court stood firm. In response, the government passed a retroactive amendment of the Income Tax Act, 1961, making similar transactions from the fiscal year 1962-63 onward taxable. This has created a debate over whether this strategy to make corporations stop ducking taxes is smart policy or whether it discourages foreign investment.

Pro Government Passing Amendment to Go After Corporate Tax Cheats
Vodafone and corporate bosses welcomed the Supreme Court’s decision but many called the retroactive amendment to the tax laws unfair. They said the judgment could do wonders to the confidence of potential foreign investors. Delivering the judgment, Chief Justice S.H. Kapadia, who, incidentally, was once a standing counsel for the Department of Revenue, had put the onus on the government and the Parliament to bring clarity to the laws in question if they hoped to continue to attract investment from abroad.

Vodafone-Hutch deal: Retrospective change to I-T Act (by Nikhil Kanekal & Kian Ganz, Mint)
The flawed Vodafone verdict (by Buroshiva Dasgupta, Tehelka)

Anti-Government Passing Amendment to Go After Corporate Tax Cheats
Manmohan Singh’s United Progressive Alliance (UPA) has been criticized for “giving away the 2G spectrum on the cheap” and doing “little to bring back the billions of Indian dollars stashed away in tax havens.” And now it was taking on companies that had exploited loopholes in India’s tax regulations using tax havens as their bases. It did not come as a surprise to someone attuned to the sentiment in the country. However, experts pointed out how the government was caught unaware on the inadequacy of the laws and how a lack of tax avoidance treaty with Mauritius dealt it a body blow. 

How India’s Biggest Tax Battle Was Won And Lost (by Nikhil Kanekal & Kian Ganz, Mint)
Vodafone tax law unbelievable: Goldman CEO (by Mayur Shetty, The Times of India)
Retrospective Changes In Tax Laws Unfair: Vodafone (The Hindu)
 

Sunil Mitra
Sunil Mitra, a 1975-batch IAS officer was appointed revenue secretary in early 2010 and held the position until June 2011, when he retired. He is from the state of West Bengal, where he was the secretary, Power, before heading to Delhi to take the reins of Department of Disinvestment in the Ministry of Finance. Mitra had caught the eye of Finance Minister Pranab Mukherjee, who also hails from West Bengal, as he steered a reluctant Marxist state government on a path of reforms while also reviving government-owned companies. Before he retired, he was also briefly secretary, Finance.