The Centre's Income Declaration Scheme (IDS) 2016 fetched Rs 65,250 crore. During its announcement, the Finance Ministry has said that 64,275 people have declared black money, availing of the opportunity with the average amount of black income per declaration at approximately Rs 1 crore.
Indubitably, the well-nigh Rs 30,000 crore in taxes being the bonanza for the Centre as it struggles with a shortfall in spectrum sale realisation to make do with its fiscal management remit.
The government gratuitously refrained from naming it as an amnesty scheme as it had earlier committed to the apex court in 1987 in the aftermath of the voluntary disclosure of income scheme (VDIS) and public interest litigation that there would not be any more tax amnesty schemes.
Still, the odour of amnesty cannot be disabused as the IDS is patently unethical to the government’s avowed commitment to the apex court. The obvious reason for not declaring it as an amnesty scheme is because the latter is grossly unfair to honest taxpayers while those evading taxes get not even a bare-knuckle for reporting their past income.
Though it is close to two decades, the 1997 VDIS brought Rs 33,000 crore and a tax of about Rs 10,000 crore. While the number of declarants in both cases is almost the same, the quantum realised in the latest scheme is double, reflecting that most of the big evaders remained outside the optional net, undisturbed by the carrot and stick policy of the tax authorities! Those who seldom had any interface with the department and who batten on by willfully carrying on transactions in cash and contraband goods do not seem to be a bit hit even at the margins with average black income declared a midget Rs1 crore under the IDS.
Tax experts contend that the IDS is an amnesty scheme because the penalty slapped on it is less than what was being imposed on tax evaders before the plan was in place. Thus, before June 2016, if a person’s income was found to be concealed and found out, the penalty ranged from 100 to 300 percent of the tax evaded, depending on the “discretion” of the assessing officer! Since the tax rate is 30 percent, the penalty worked out to 30 to 90 percent of the income evaded.
But under the IDS this is only 30 percent of the tax rate plus the penalty of 15 percent, making it only 45 percent! Thus, this time around the Centre’s manifest move was to mop up the black money pile operating in the economy by extending the taxpayers (those that were actually avoiding) amnesty to disclose undisclosed past income by disbursing tax on it at a slightly high rate of 45 percent to get over the sins of past negligence and willful default.
One must note that the Comptroller and Auditor General (CAG)?had picked holes in the Voluntary Compliance Encouragement Scheme (VCES), an amnesty for service tax assesses, saying the scheme introduced in the financial year 2013-14 Budget was full of ambiguities and the intention was only to “rake in” revenues without a plan to improve tax revenues. It was aimed to motivate around one million stop/non-filers to file returns and pay tax dues. But only 66,072 declarations were received involving taxes worth Rs 7,750.30 crore.
In his performance audit of the scheme, the CAG said the envisaged scheme grant of immunity for a truthful declaration of service tax dues. No basic documents in support of tax liability declared were prescribed, and verification of correctness of declaration was restricted only to mere check arithmetic accuracy. Even basic facts apparent on the face of the declaration were unverified.
Interestingly, the CAG report noted that clarifications given by the Board regarding pending demand notice, inquiry, audit or investigation, which make the declarant ineligible for the scheme, were contradictory to the provisions and the intention of the scheme. It resulted in the extension of unintended benefit amounting to Rs 130 crore in 332 cases.
Rightly the CAG report suggested that the amnesty scheme should be followed by an extended drive to bring evaders to tax net through a departmental probe and vigilance wings so as to send a strong message to defaulters. These are the lacunae found in the voluntary compliance encouragement scheme as detected by a Constitutional body like the CAG and its findings might help in plugging the glaring loopholes in the IDS 2016 so that the faith of the 4.33 percent taxpayers in the country is not shaken in the system.
A recent report by Ambit Institutional Equities analysts contends that the slender income tax base in the country reflects the extent of economic activity that gets conducted through informal channels and transactions beyond the ken of tax officials which amount to about 20 percent of the gross domestic product.
Accelerated official scrutiny under target-reaching compulsions by tax authorities of domestic transactions had goaded tax evaders to keep money in cash, obstructing the demand for formal banking services. The country suffers from a back-breaking burden of black money with direct taxes accounting for only 35 percent of the take in India, compared to the industrial country’s ideal of two-thirds.
It is not that tax evasion is treated with a light touch by the political leadership as one party after another draws attention to the deleterious consequences of not plugging the loopholes in the tax system. Prime Minister Narendra Modi hit the campaign trail in 2014 elections, pledging to bring back each and every penny deposited abroad by Indian citizens and declared that this money belongs to the poor people of India. A scheme Modi government piloted in 2015 brought Rs 4164 crore in assets and black money held abroad with a higher rate of voluntary income declaration.
At the end of the day, no amount of amnesty or voluntary schemes would do unless the authorities clean-up their backyard. First and foremost, authorities should make electoral funding transparent so that the after-effects of victory to please corporate donors do not contribute to all sorts of shenanigans. Cashless transactions and the promise of “unified payment interface” which would make it facile for domestic consumers to use their mobile phones to transfer money to each other would all herald the slow but sure death of black money hold in the economy by degrees, policy analysts wistfully say.
(The views expressed are strictly personal.)