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V.G. Siddhartha—A Victim of Tax Terrorism?

The death of V.G. Siddhartha, the founder of Cafe Coffee Day, was tragic not only due to its nature but also due to the uncomfortable truth around the whole affair. En route to Sakleshpur, V.G. Siddhartha asked his driver, Basavaraj Patil, to drive him to Mangaluru instead and then instructed him to stop on the bridge over Netravati River. This was where he got off, and that was the last time anyone saw him alive. Thirty-six hours later, his body was found by two fishermen. The investigation into his death is still underway.

V. G. Siddhartha was last seen alive near the Netravati river bridge. (Credits: theweek.in)

The incredible pressure surmounting a leader of an immensely popular conglomerate such as the Coffee Day enterprises is, of course, a matter of no surprise. However, the circulation of a letter, allegedly written by him prior to his death, has sent the public into a frenzy of sorts and has prompted a huge outcry over widespread ‘tax terrorism’ in the country. Acquired and reported by Asian News International (ANI), the letter addressed to the Board of Directors and employees of Coffee Day enterprise, purports his efforts towards building the company and the sincere remorse at having failed to “create the right profitable business model”. 

“I gave it my all…I fought for a long time but today I gave up as I could not take any more pressure…I hope someday you will understand, forgive and pardon me.”  His letter, filled with sentiments, bears testimony to his grit and years-long endeavour as a leader who struggled through challenging times but eventually succumbed to mounting pressure. The letter places principal blame on a “private equity partner” and the previous Directorate-General (DG) of the Income Tax (IT) Department for harassing him into making certain decisions that led to a serious liquidity crunch. In response, the Principal Chief Commissioner of the Bengaluru division of the IT Department had said that due process was followed and appropriate measures were taken to protect the interests of revenue out of the income admitted by V.G. Siddhartha. At the same time, he also cast doubts on the very authenticity of the letter. 

The IT Department, along with the Enforcement Directorate (ED), had in the past, raided the offices of V.G. Siddhartha in 2017. They now state, however, that the investigation against him “was not very serious and detailed”, and was conducted due to alleged tax irregularities which eventually resulted in collecting evidence of 362.11 crore rupees of unaccounted income in his name. The current norms dictate the attachment of assets in order to balance out the tax evaded, which consequently led to his shares in another company (Mindtree Ltd.) to be attached against the liability. This was, however, later revoked due to the alternate attachment of Coffee Day shares. All of this panned out as a constant tussle between V.G. Siddhartha and tax authorities, while reports of involvement of political figures added a new dimension to this issue.  

Businesses of all forms are influenced by political gameplay vis-a-vis their control over regulations and, undoubtedly, a political vantage exists here as well. In an economy such as ours, innovation and entrepreneurship hold the driving impetus for betterment. However, legal complexities and policies have not yet given an unbound encouragement for growth. The NDA government has volleyed in some stout changes in the finance, industry and labour sectors, like the recent amendment to the Companies Bill, the Insolvency and Bankruptcy Code etc. In response to this, it is noticeable that the executive wings under it like the ED and IT Department have become a tad bit more rigorous—to a point where the line between failure and fraud has been blurred. Being an entrepreneur in India brings its own shares of mistrust, and this attitude towards businessmen has been heightened by runaway fugitives like Vijay Mallya and Nirav Modi. “The working assumption on TV news shows and in living rooms is that anyone who failed using borrowed money defrauded their investors and the public. Businessmen whose bets have gone bad must fear arrest as well as bankruptcy” writes Mihir Sharma, aptly describing the Indian scenario in an article for Bloomberg.

On August 18th, the IT department announced a major change in approach towards individuals and companies, by assuring them that notices will not be the first response of tax authorities to queries relating to expenditure, or information that may have skipped a taxpayer’s attention or was omitted while filing returns. They also plan to adopt a non-threatening language in their communications in a bid to shift towards cordial communication between assessees and tax officers.

This move, although a small step in the right direction, has shed light on the harsh practices used by the IT department, as well as the failure of past governments to address the larger issue. However, it is unfortunate that to inspire any change in the mindset of the tax departments, entrepreneurs such as V.G. Siddhartha had to become the casualties of a well-intentioned, yet brutal crackdown on taxpayers.