Buying a vehicle on a tax free permit? Then expect a letter from the tax department

This story was narrated to me by a friend. He had been thinking of buying a Mitsubishi Montero (for Rs.12m, on a permit) and had almost finalised the deal. He quickly backed off when a couple of his friends who had bought vehicles on permits received letters from the Department of Inland Revenue, asking for details of income.

Apparently details of anyone who registers a new vehicle, bought under a tax-free permit are sent to the Inland Revenue, who will follow up with tender inquiry as to where the buyer got the money from and whether it has been declared for income tax.

Its a bit unnerving for people but not as bad as the situation another friend faced about 6-7 years ago, when the economy was in the absolute pits. He had got married and the reception was held at a hotel, the Inland Revenue rang him up and asked him how he had paid for his wedding!

Apparently they had been diligently collecting details of booking for large parties from hotels and calling people to ask how they paid for them.

Incidentally, the company my first friend works for has just bought a new BMW X5 for their CEO. The normal duty paid price is apparently Rs.47m but on a permit, it costs Rs.20m, still a colossal sum. The permit itself, a 'minister's permit' cost Rs.8m. The company had to send the requisite information to the Inland Revenue but since they had their tax files and were filing regular returns it was not a problem.

The Inland Revenue's tactics are perfectly legal and there can be no objection to legitimate follow up sources of income. However, this should not be confined to ordinary citizens but should include ministers as well; who are supposed to declare their assets, which many have not.  

The more serious issue is the permits, a classic case of the so-called 'license raj' or rent seeking activity. High tax is charged on certain products or services but the Government then goes on to issue "tax free" or reduced tax permits to a section of the population (state employees, or more disturbingly, ministers). These permits are then sold to others, with the permit holders pocketing the a tidy profit. This is done largely with the intent of benefiting favoured constituents and is unfair by ordinary citizens. Claiming that this is done because of poor public sector pay is disingenuous.

Let ministers and public servants be paid proper salaries - allocated through the budget and transparent to all, but let them also pay normal taxes. Don't allow them to make hidden profits by changing the tax and legal codes to enable them to do so.

Another (unverified) story that I heard is that ministers are entitled to to two bus route permits and either a petrol shed permit or a liquor license. We do not know if this is true but we know for a fact that the allocation of these permits is murky and generally goes to favoured constituents. These are then sold on to people who run these businesses, which is one reason why public transport is so bad, why so many are trying to buy motorcycles, cars or trishaws and why all are inconvenienced by congestion and pollution.

Its not just a case of profits for the few, there are also wider social costs that are borne by many, not to mention the sheer hypocrisy of ranting on about the evils of liquor, while the very business is under close control of the same politicians.