By Tarunkumar G. Singhal, Raman Jokhakar, Chartered Accountants
On October 1, finance minister
Arun Jaitley announced that the government was pleased with the windfall from
the four-month black money disclosure scheme that ended on September 30. Indians
have declared hidden assets worth Rs 65,250 crore ($10 billion). The tax
collection, at Rs 30,000 crore ($4.5 billion), will help build many a road and
school. But, by global standards, the haul is small. Could a lighter price have
earned more revenues?
Amnesty schemes being offered in
countries such as indonesia and argentina
are yielding huge
revenues due to low tax and penalty rates. In indonesia, those with
hidden assets abroad need to only pay a flat fee of 1-6 per cent of the value
of the assets depending on how quickly they declare their stash and whether they
repatriate it. There is also no prosecution or penalty. These countries are
clear about maximising revenues, having decided to pardon those who have broken
the law.
India does not fall in that
league. The just-concluded income declaration Scheme (IDS) allowed people to
pay tax, surcharge and penalty adding up to 45 per cent on their past
undisclosed income. The design was better than the earlier scheme that fared
miserably due to the heavy price — 30 per cent tax and an equivalent amount as
penalty — and the lack of trust as to whether there would be penalties even
after coming clean.
Should the government offer a
second chance to those with hidden wealth overseas to come clean? Paring the
tax rate will make it work. Some would argue against india offering frequent
amnesties the way they do in, say, italy. But the US offers an open-ended
offshore voluntary disclosure Program.
One model could be the sort of
permanent amnesty scheme offered by Scandinavian countries and South africa. A person
is allowed to declare her past undeclared income before the case is picked up
for audit. As the government cannot possibly cover a wide range of taxpayers in
audits, such a scheme allows taxpayers to regularise their tax affairs and
start afresh.
Jeffrey owens, former director of the OECD Centre for
tax Policy and
administration, says people
must be given enough time to
unwind their past tax affairs before governments move to the new world of tax
transparency. That’s a valid point. India
will join other countries to follow common reporting standards from next year. This
means exchange of information on account holders across jurisdictions will be
automatic, making it tough for tax dodgers to hide their wealth.
Also, there is no stigma attached
now to offshore voluntary compliance schemes. The OECD has endorsed these
schemes that have been introduced in many countries. India is only rolling with
the tide, and when businesses bring money on to their books, they can repay
loans, avoid bankruptcies and secure fresh credit. Leveraging on higher equity
capital will also make them expand, and help the economy grow.
David Bradbury, head of the OECD
tax Policy and Statistics division, however, reckons that governments should
weigh the benefits and costs, as it can create a perception that voluntary
disclosure schemes are par for the course.
The problem in india is very few
are convinced that non disclosure would lead to punitive action. That must
change. Egregious offenders must pay. The US department of justice puts the information on prosecutions launched
in public domain. Britain’s revenue and customs department too has made it
clear that people can’t get away saying ‘don’t tax me, tax the man behind’.
India will have game-changing
data with automatic information exchange to pursue tax evaders. Having joined
the global war against tax evasion, it should follow Britain and create a
Unique Legal Entity Identifier to trace the real, beneficial owners of companies.
Here, effective sharing of information will help.
Amine of data is already
available with the income-tax department through the annual information returns
that identify potential taxpayers by examining their spending patterns. To
check for evasion, it has been matching the data provided by various agencies
with an individual’s income-tax returns.
What we really need is
intelligent data mining to create rock solid proof of tax evasion. Why not
consider data not filed, but gathered using data-mining techniques, using big
data analytics?
India should also reform its
direct tax regime to lower tax rates, and widen the ridiculously low base. it
also partly explains why
tax as a proportion of GDP has been stagnating at about 16.5 per cent
for the last three decades. The goal must be to at least double india’s tax- GDP
ratio to meet spending commitments. Moving to the goods and services tax (GST) will certainly provide an opportunity to
reform direct taxes. We can then forget amnesty schemes.
(Source: Article by Hema
Ramakrishnan in the Economic times dated 05.10.2016)
