The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 received the assent of the President on 26th May, 2015. Subsequent to its enactment, rules were notified, and the CBDT came out with certain clarifications. The first reactions from experts seem to suggest that the law is stringent, and despite the “clarifications” is unclear about a large number of issues. The Act imposes a maximum penalty of three times the tax, and a minimum of an amount equal to the tax, for those who avail of the onetime window available to declarants who make a declaration of undisclosed assets prior to September, 2015. Apart from this, the law prescribes, punitive action by way of prosecution. If the object of the law was to achieve a whopping tax collection, that may not be achieved. This issue contains an article by T.P. Ostwal, discussing some of the significant provisions of the Act.
Money of residents which is siphoned off after evading tax, certainly causes significant damage a to a country’s economy. I had said in an earlier editorial that bringing back such foreign funds should be one of the priorities of the government. This is because such money goes out of all channels of distribution “black or white“, and consequently slows down economic activity. Thus, while all black money creation is bad, such money stashed abroad is worse. In such a situation, though garnering tax revenue and penalising offenders is certainly one of the objectives, bringing back such money into the “white” economy should be another. Does legislation like the Black Money Act have such an objective?
It is nobody’s case that those committing infringement be treated leniently but, one wonders if the law provides a marginal incentive to those who introduce the money into normal banking channels, the objective that I mentioned in the earlier paragraph can be achieved. For example, if under the scheme, if a person invests the monies lying outside India in low interest bonds issued by the government, and in return is charged a lower penalty, it would augment the government’s resources and the money would enter the legal economy. This is not a new concept and some earlier schemes did contain such provisions. I am conscious of the fact that when the Voluntary Disclosure Scheme 1997 was under challenge, there was an assurance given to the Supreme Court that there would be no further amnesty schemes. However a way has to be found so that the objective is achieved without violating the assurance /undertaking given to the Supreme Court.
It appears that when a tax law is framed the only objective of those who draft the legislation is to garner maximum taxes for the government. Undoubtedly this is a laudable objective. What must be borne in mind is that there are other angles and nuances that must be appreciated. This is often not done.
Two examples quickly come to mind. They are in the form of two provisions in the Income tax Act, one which has been with us for a decade and a second which was legislated recently. It is well known that a real estate business is one of the largest sectors where the parallel economy prospers. Transactions in real estate take place at prices which are significantly different from those recorded in the documents. It is extremely difficult to tax such unrecorded consideration given the lack of evidence. To counter this a provision was brought in whereby the stamp duty valuation was treated as the full value of consideration received if this was more than the consideration stated in the document,. The provision contains reasonably sufficient safeguards to ensure that genuine cases did not suffer. The provision enabled the tax gatherer to tax the difference in the hands of the seller.
What is important is that the difference in the stamp value valuation and the prices recorded in the document is a definite indicator that the balance consideration received by the seller and paid by the purchaser has entered the parallel economy. No attempt seems to have been made to bring this into the official channel. . Similarly, the provision of adopting the stamp duty valuation is now extended to those carrying on business in real estate. Once again the tax gatherer is happy collecting tax while no effort seems to have been made to bring such money which is outside the system into the mainstream. What really happens is that such money which lies outside the economy does not lie idle. It is invested, reinvested or “turned over” in business cycles and grows. Therefore, the volume in the parallel economy doubles itself in 5 to 6 years.
What one really needs to attempt is the creation of an environment, either through incentives or otherwise to bring such money back into the recorded economy. It is only then that the problem of black money with all its attendant ills will be reduced. I do appreciate that this is easier said than done; but law makers, particularly in the tax field must keep this in mind. This may call for some innovative solutions but an attempt must be made.
When will this objective of reducing the black money volume be achieved? This will be achieved only when the concept of “ease of doing business” does not remain on paper but is brought into reality on the ground. Archaic laws must be repealed, unfair provisions in laws amended and existing laws administered fairly and in a humane manner. Then the volume of black money will be reduced.
As India celebrates its 68th Independence Day, will the law makers, politicians and bureaucrats take some action in this regard?
