It is not uncommon for governments around the world to offer a small window to those who have successfully managed to evade taxes, from time to time. Understanding why they do it is not difficult. Tax departments are often over worked and in an increasingly globalised world where taxation mechanisms are getting even more complicated, it is not a particularly enviable job. Even when you catch a heavy duty serial offender, the resultant litigation blunts if not frustrates the whole process. You wish citizens were more honest but in a country like India, not paying taxes is not even considered a sin.
HIGHLIGHTS:Union Budget 2016
In the backdrop of a failed attempt at bringing back truck loads of black money stashed abroad through a voluntary disclosure scheme last year, you can't be blamed if you think finance minister's Arun Jaitley's latest bid to lure domestic tax payers into straightening up their accounts through a four month compliance window is a desperate measure. Infact a prominent business leader present at a public viewing of the budget (it is prudent he remains anonymous here) said it was akin to government saying, "since we cant catch you, why dont you surrender yourself and we promise you wont be punished for that."
FULL COVERAGE:Union Budget 2016
The compliance window of the Black Money (Undisclosed Foreign Income and Assets Act) that was open for full three months between July-September last year bore very depressing results. Against claims of Rs 100,000 crore stashed abroad (Prime Minister Modi himself had referred to it while campaigning in 2014), all that the government got was a mere Rs 4,147 crore and only 638 offenders.
Yet, if successful, such amnesty schemes do open up unforeseen sources of revenue for cash starved governments. Former finance minister P Chidambaram's blockbuster voluntary disclosure scheme in 1997 is one such example. Through a 6 month compliance window, the government shored up revenues of Rs 9,584 crore with 4,75,133 declarants.
A second successive failure for Jaitley here would invariably draw comparisons with his arch rival but it is important that both schemes are very different. In 1997. the companies and individuals were not penalised and charged just 35 per cent and 30 per cent respectively. That is the rate at which firms or individuals are taxed anyway. Basically, it ended up taxing the offenders just the same amount that they would have had to pay if they had been honest all throughout. If you are an honest tax payer, maybe it is not music to your ears. It isnt to Jaitley either.
"Its not a VDIS (Voluntary Disclosure of Income Scheme) and it is not an amnesty," Jaitley said while interacting with the press after presenting the budget in the parliament. "Inequality arises in amnesty, where under certain exemptions, you as a honest tax payer has paid 30 per cent and I come and join after 20 years and say that I would also pay 30 per cent. This is not structured that way. You pay 30 per cent tax and 7.5 per cent as surcharge and another 7.5 per cent as penalty...so 45 per cent overall. You end up paying one and a half times more. So you are paying penalties for not paying tax on time. This is intended to bring some money from outside the system into the system."
This should be comforting both to the honest tax payer as also somebody who is at least one bit afraid of the tax man. The former should be happy that the bad guy is being brought to book and made to pay for it and the latter would draw solace that he is not headed to the gallows. A rate of 45 per cent against 60 per cent for the ill fated 2015 compliance window, also shows Jaitley wants to sweeten the deal a bit for the absconders. A refusal to divulge exactly how much money has escaped the tax department or how much he expects to get from this however, does betray his nervousness.
"While one can debate the merits or demerits of an amnesty scheme, it will surely help in unearthing domestic black money," says Rakesh Nangia, managing partner, Nangia & Co and Co chairman international tax committee, Assocham. "The effective tax outgo of 45 per cent is a reasonable rate and should convince people holding unaccounted money to declare it to the Government and buy peace."