Time to act tough

Black money has always been a big irritant for any government. But for the present NDA government, it is a bigger challenge as the BJP had made it a big poll plank. Though the government is yet to get any remarkable success in uncovering the black money, some efforts made by it are laudable and speak of its serious intent.

It has opened a special window – Income Declaration Scheme, 2016 – that gives another reprieve of four months to declare their undisclosed income or face stringent punitive action. The scheme is in force from June 1 to September 30, this year.

So far, not many people have come forward to declare their undisclosed income and it will not be surprising if it meets the same fate as the foreign income and assets declaration scheme announced in Budget 2015-16 which failed to yield desirable results apparently because of high tax rate of 60% and penalty.

Parliament enacted The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Taxes Act, 2015 which declares its object like this: “An Act to make provisions to deal with the problem of the black money that is undisclosed foreign income and assets, the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto.”

It provides for imprisonment of 10 years besides penalty if tax evasion is proved. Irrespective of its failure or success, it reflects on the noble intention of the government. However, the government must do some brainstorming as to why did it failed to yield the desired result. Another legislation to curb black money is the enactment of The Benami Transaction (Prohibition) Amendment Act, 2015. This act was originally made in 1988 but could not be enforced because of some inherent contradictions.

The rules under it could not be framed for 27 years and the Act remained shelved. Under the pressure of the Anna Hazare movement, the UPA government introduced the amendment bill in Parliament but it was referred to the Parliamentary Standing Committee on finance. The Committee submitted its report in June 2012, but the government could not muster courage to introduce it, and the bill lapsed with the 15th Lok Sabha.

The data regarding the declaration of income are baffling. Out of a population of 125 crore, only 1.5 lakh have declared their taxable income above Rs 50 lakh. It may be contrasted with a 2015 Credit Suisse survey that said that India had 1,85,000 dollar millionaires. Prime Minister Narendra Modi hit the nail on the head when he pointed out the huge mismatch between India’s tax and wealth statistics.

It is heartening that an international opinion is building up against black money. Never was this issue discussed in the G-20 forum, but in the last summit one paragraph was on unaccounted and black money, and 20 countries agreed to fight the menace of black and dirty money as it is also linked to terrorism. Dirty money is different from black money as it is the money earned by crimes. So, since all dirty money is black money, all black money is not dirty money.

The Panama papers provide compelling evidence of how Mossack Fonseca used its leverage to write and bend laws all over the world to safeguard the interests of criminals over a period of decades. It is such a company which protected around two lakh such dubious operators. Jurgen Mossack and Ramon Fonseca want to mislead by giving the impression that their firm’s shell companies are not into any hanky-panky, but the Panama Papers conclusively prove that they are used to carry out a wide array of serious crimes and not confined to evading taxes.

Swiss role

However, the situation is changing. Switzerland has also assured it full cooperation in unearthing black money. Rudolf Elmer, a former employee of the Swiss Bank Julius Bar, made a CD containing the list of those having account in Swiss Bank.

The list has the names of 17,000 Americans and 2,000 Indians. The USA could successfully bring back $780 million on the basis of this list. Elmer worked with the bank for nearly two decades, and in his last assignment, he looked after bank’s Caribbean operation until his dismissal in 2002.

He shot into prominence as a whistleblower in 2008 when he gave secret documents to WikiLeaks describing the activities of Julius Bar in the Cayman Islands and how it helped evading tax. However, the deposits in the Swiss and other foreign banks are fast depleting which is quite natural as moneybags stashing away money to foreign banks are not nincompoops.

Experts are not every sanguine about the success of the scheme of voluntary disclosure. Earlier,  six Voluntary Disclosure of Income Schemes (VDIS) were introduced till 1997. In 1997, the Supreme Court made a swingeing criticism of such schemes that honest tax payers feel cheated while the dishonest go scot free by paying a penalty.

Not only that, the Court took an undertaking from the government that no such ‘amnesty scheme’ would be announced in the future. So, the latest window has not been called an amnesty scheme, but, nonetheless, it is amnesty in nature.

The government has to act tough but it must not be unmindful of unreasonable tax structure which is tantamount to tax terrorism. Over 4,000 Indians have become NRIs in the last two years to escape the Indian tax dragnet. RBI governor Raghuram Rajan warned against a dangerous trend of frequently questioning the legitimacy of entrepreneurial prosperity. However, the government must not be lenient to anyone in the name of entrepreneurial enterprise though genuine enterprise must be encouraged.