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Game of credibility

 MPost |  2016-06-17 21:29:05.0  |  New Delhi

The warning was also extended to their kin and friends. The BJP-led Centre does not want to face further embarrassment after the names of some senior party leaders surfaced in high-level black money probes. Many state-level BJP leaders’ have business interests spread across sectors like real estate, education, and mining, where the scope for black money is immense. 

Prima facie, Modi’s assertion that “the government would not rescue anyone” from prosecution assumes political significance. But more than the desire to avoid embarrassing questions of their leaders, the party is desperately trying to generate an atmosphere of credibility surrounding its tax amnesty scheme. 

The Income Declaration Scheme, 2016 incorporated as Chapter IX of the Finance Act 2016 provides an opportunity to all persons who have not declared income correctly in the past to come forward and declare such undisclosed income(s). Under the scheme, such income as declared by eligible persons, would be taxed at the rate of 30 percent plus a "Krishi Kalyan Cess" of 25 percent on the taxes payable and a penalty at the rate of 25 percent of the taxes payable, thereby totaling 45 percent of the income declared under the scheme. 

The scheme shall remain in force for a period of four months from June 1, 2016, to September 30, 2016. Those who declare black money within this compliance window will not be subject to any sort of prosecution by the government, besides getting a free pass from any inquiry under the Income Tax Act, Wealth Tax Act (now abolished) and the Benami Transactions (Prohibition) Act.

 As per its amnesty scheme, people who have made money through “corrupt means” will not be allowed to take advantage of the disclosure window. But what's the difference between unaccounted money and the same made through corrupt means? Moreover, the government clarified that declarations made under the scheme will not be used against the declarants under the Income Tax Act, Wealth Tax Act (now abolished) and the Benami Transactions (Prohibition) Act. 

The Centre's amnesty scheme distorts the average citizen’s incentive to file their income tax return in an honest and transparent manner. Experts contend that the only way such a scheme could work if the Centre’s threat of serious action against future defaulters is credible. “The problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt with effectively and forcefully,” Finance Minister Arun Jaitley had once said.

 But a black money amnesty scheme on these lines could lead to greater inequity. But more than the politics, the fight against black money is about increasing the number of Indians who pay direct taxes. The recent Economic Survey, which was tabled before Parliament earlier this year, reported that it was important for the government to increase the number of Indians who pay tax. “Controlling for the level of democracy, India’s ratio of taxpayers to voting age population is significantly less than that of comparable countries. 

This implies that while at present about 4 percent of citizens who vote pay taxes, the percentage should be about 23,” the Survey said. It went on to further point out that approximately 85 percent of the country is outside the tax net. In addition to hampering the government’s ability to raise revenue, such volumes of unpaid tax only point to the massive amount of black money in our financial system. Will the current tax amnesty scheme resolve this problem? It’s a Band-Aid at best.

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