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Lessons from Ricky Martin’s tax travails in India

Bibek Debroy writes: If delayed tax payments by tax-payers automatically invoke interest, shouldn’t delayed refunds also automatically invoke interest payments? What about the alacrity with which the department implements orders of appellate forums?

Written by Bibek Debroy |
Updated: September 10, 2021 8:34:22 am
The case started in December 1998 and ended (with an intervention by the Delhi High Court) in 2016.

Those who love music will be familiar with the name of Enrique Martín Morales, better known as Ricky Martin. Unless you are a lawyer or a CA, you may not know that the Puerto Rican singer had a famous problem with India’s tax department. I was reminded of this incident because I read a just-published book, edited by Mukesh Butani and Kinshuk Jha, on taxpayer rights. Legally speaking, the case was between Sony Music Entertainment and the Deputy Commissioner of Income Tax. The case started in December 1998 and ended (with an intervention by the Delhi High Court) in 2016. Seventeen years may not seem that long for those who have some knowledge of the notoriously slow justice delivery system. Nevertheless, such delays should not be acceptable, especially if there is no merit to a case.

Let me tell you what the case was about, in the words of the editors of this new volume. “On December 7, 1998, the famous Puerto Rican performer, Ricky Martin, was examined by income-tax officials at Hotel Radisson as he was summoned before his departure in relation to a ‘tax clearance certificate’ for leaving India.” What is a tax clearance certificate? I have to subject you to a little bit (not too much) of legalese from Section 230 of the Income Tax Act. Since we are talking about the law, I will quote it verbatim. “No person (a) who is not domiciled in India; or (b) who is domiciled in India at the time of his departure, but intends to proceed to another country on a work permit with the object of taking up any employment or other occupation in that country; or in respect of whom circumstances exist which in the opinion of an income-tax authority render it necessary for him to obtain a certificate under this section, shall leave the territory of India by land, sea or air unless he first obtains from such authority as may be appointed by the Central Government in this behalf a certificate stating that he has no liabilities under this Act” — and some other tax-related statutes too.

Also, “If the owner or charterer of any ship or aircraft carrying persons from any place in the territory of India to any place outside India allows any person to whom sub-section (1) applies to travel by such ship or aircraft without first satisfying himself that such person is in possession of a certificate as required by that sub-section, he shall be personally liable to pay the whole or any part of the amount of tax, if any, payable by such person as the assessing officer may, having regard to the circumstances of the case, determine.”

Ricky Martin’s shows in India were organised by Sony Music Entertainment and Ricky Martin didn’t have the tax clearance certificate. Therefore, he wouldn’t be allowed to board the plane. To get back to Butani and Jha, “Against these investigations, the sponsor of the Ricky Martin shows in India, Sony Music, filed a writ petition in Delhi HC (High Court) in 1999”. Almost 17 years later, in 2016, the Delhi HC quashed all summons, notices and orders for the department’s failure to place on record any outcome of investigation initiated after examining Ricky Martin. The HC, in its conclusion, relied on a letter written by Ricky Martin retracting the recorded statements. The singer claimed in this letter, addressing the department, “the statement on oath was extracted by you from me under threats from you that I would not be allowed to leave until I signed this statement under oath”. “The recording of Ricky’s examination started at 7.30 pm in the evening and went on until early hours of the next day, leaving him with only enough time to catch his British Airways flight.”

Like the judicial system, ex ante (a favourite expression of economists, meaning, in advance), one doesn’t know whether a person is innocent or guilty. That is known ex post (after the investigation and the judicial process). The process of investigation necessarily involves some harassment. In the shortage years, the late 1980s, I remember applying for a MTNL landline telephone connection and reading the service-friendly MTNL circular to its employees, stressing that processes should not lead to “more than necessary harassment” to customers. I believe compliance costs cannot be truly reduced until the system is cleaned up through removing exemptions — the new Direct Tax Code is still a work in progress. Having said that, notwithstanding the goal of cleaning up, what happened to Ricky Martin (and there are other such cases) was undoubtedly more than necessary harassment.

Don’t get me wrong. There have been several improvements. The IT department has a “Vision 2020” document. Prime Minister Narendra Modi launched the Taxpayer’s Charter in August 2020. (Fleshing out the charter and giving it more teeth is the subject matter of the book I mentioned). There is faceless assessment and the “Vivad se Vishwas Scheme”. The big bang cleaning up apart, and notwithstanding improvements, I think a lot can still be done on appeals, scrutiny, refunds and dispute resolution and procedural improvements. If delayed tax payments by tax-payers automatically invoke interest, shouldn’t delayed refunds also automatically invoke interest payments? What about the alacrity with which the department implements orders of appellate forums? Even under the unreformed system, 17 years is too long. In other words, in the small picture, there is scope for a relook at the way the department handles litigation.

This column first appeared in the print edition on September 9, 2021 under the title ‘The tax on Ricky Martin’. The writer is chairman, Economic Advisory Council to the PM. Views are personal

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