Sharing the booty

You can demand from a thief, you have seen in the act of stealing, to share the booty with you and succeed only when you can convince him of your superior strength; else, your threat will boomerang at you. The success or failure of the ongoing Income Declaration Scheme (IDS) 2016 is going to depend on a similar phenomenon. Besides assessing the government’s capacity to book them, the evaders might also analyse the comparative benefit between the disclosure and non-disclosure.

To be clearer, the two questions they are likely to ponder over will be: i) can and will the government catch them if they don’t disclose their underground income/wealth?; ii) Does the disclosure scheme offer better incentives than doing business with black money as usual? In his budget 2016-17 speech, Finance Minister Arun Jaitley summed up the essence of the scheme: “I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income.

There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. ….We plan to open the window from June 1 to September 30, 2016 with an option to pay amount due within two months of declaration (the two months period later extended to September 2017). ..having given one opportunity for evaded income to be declared once, we would then like to focus all our resources for bringing people with black money to books.” By way of further clarification issued on June 30, the government said ‘no’ to the question, whether the department will make any enquiry in respect of sources of income, payment of tax, surcharge and penalty? Some have interpreted that to mean the effective tax rate being just 31% because the tax amount could also be the black money in addition to the declared income. This interpretation cannot be disputed with until the government specifically says anything to the contrary. Empty Threats: Anyway, the government is giving bountiful concession to make black money white and wants to be very tough thereafter. In fact, no previous scheme to unearth black money with the voluntary disclosure was without such ‘threat’ which later turned out to be ‘empty’.No scheme could unearth substantial portion of black money whatever may be the claims to the contrary. The recent scheme - the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - was a big flop.

The yield from the scheme was a paltry about Rs 2,600 crore, not even equal to 1% of the income tax collected in one year. Similar was the fate with schemes before.There had been at least 14 schemes before this one. The very First Voluntary Disclosure Scheme VDS 1951 yielded just about Rs 11 crore. The second, the Finance Act, 1965 (known as 60-40 scheme which allowed the declarant to retain 40% and pay 60% tax) brought in Rs 29 crore. The third, Finance Act (2), 1965 garnered Rs 20 crore. The fourth, the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1965 yielded Rs 18 crore. The fifth, the National Defence Remittance Scheme fetched Rs 70 crore.

The sixth one, Voluntary Disclosure Scheme 1975, brought to fore an unaccounted income of Rs 738 crore and unaccounted wealth of Rs 790 crore against the estimated black money that time of about Rs 10,000 crore and yielded a tax revenue of about Rs 241 crore.

The seventh scheme, demonetisation of Rs 1,000 notes of 1978 too was a damp squib. The eighth scheme, the Special Bearer Bonds (Immunities) Act, 1981 could attract only Rs 964 crore. The ninth, came in the shape of the circulars of the Central Board of Direct Taxes (CBDT) (of 1985-86) which allowed tax evaders to disclose their unaccounted incomes and wealth of any year before March 31, 1986, could attract black money of Rs 700 crore.

Foreign exchange crisis
The tenth scheme, Voluntary Deposits (Immunities and Exemptions) Act, 1991 which allowed depositing of black money with NHB could garner some Rs 60 crore. The eleventh and twelfth schemes came in the wake of foreign exchange crisis of 1991, the Foreign Remittance Scheme and Indian Development Bonds, brought in about Rs 2,200 crore and Rs 4,500 crore, respectively. The thirteenth scheme, the Gold Bonds Scheme of 1993 attracted the Gold deposits of 41 tons, then valued at Rs 1,807 crore.

The fourteenth, VDIS 1997 resulted in 4.75 lakh declarations involving a little over Rs 33,600 crore income and assets (0.79% of the GDP) and yielded an overall tax revenue of about Rs 9,500 crore. So the yield from all these schemes has been peanuts compared to the estimated black money. If at all, the periodical schemes have been helping the dishonest to manoeuvre to the extent beneficial to them.

Corruption and other criminal activities in the country being the root causes for the generation of black money, as admitted in the UPA government’s white paper on black money, of May 2012, it will not come to the fore without uprooting the corruption. Yet, the government is trying to lure the evaders with carrots and sticks. Two factors the CBDT has been harping on are: I) it has prepared a database of about nine lakh high- value transactions; one lakh of them with Rs 1 crore each and II) 22,000 new employees are added to the Income Tax Department . So, it can easily go against the evaders.