Combating black cash: Time for a rethink

Allergy of the body, obsession of the mind, the BJP’s fixation, even overriding pet hobby horse, for black money is indeed gratifying for various numbers have been given to peg the size of India’s parallel economy at astronomical levels. Armed with slings, arrows and what have you, the Narendra Modi government has tried to bring everything to bear — from tyrannical taxmen virtually in jackboots to mass appeals which infatuate the proletarian bottom of India’s pyramid as its unending quest searches the deep recesses of the abyss for black stash. Suckling at the power teat, the BJP’s much-fangled strategy to unearth large tranches of cash has proved a failure. Not once, not twice, but three times in four years. Instead what it has got is — through a massive data-mining exercise — to trail ultimate beneficiaries of a large swathe of dubious shell companies and an army of tax-evading legionnaires. Using data analytics and artificial intelligence, the information gathered is being used to take action against errant offenders, leading to tax terror and inspector raj. The vagaries of DeMo may have turned all of us into hapless hostages for those 52 days, but the dividend is being reaped by investigating agencies in terms of collating information.

So why have tax amnesty schemes launched by the BJP in rapid succession failed despite all the hype and hoopla attached to them? Amnesty schemes are morally corrosive. There is absolutely no dispute on this basic premise simply because they provide an unfair advantage post facto to people who dodge the bullet on taxes. And this is gun barrel straight, no questions asked. Hapless taxpayers would argue that they do the right thing by paying their taxes and despite the stiff penalty, an amnesty scheme allows ingenious tax-dodgers to get away with blue murder. But this is only a part of the argument against an amnesty scheme, the other more compelling reason is that more often than not it is a failure in India given the humongous size of the parallel economy. Like the black cash overseas stash amnesty scheme which ended at midnight on September 30, 2015. It garnered a paltry Rs 3,770 crores declared by 638 individuals and entities. A 90-day window, which opened on July 1 with draconian penal provisions, was pretty much laughed away by black money hoarders. The government was obviously stunned with the results given that it was tom-tomming dramatic returns with half-page advertisements in mass-circulated dailies — an unmitigated disaster and a proverbial slap in the government’s face. Repeated attempts at unearthing black stash to fulfil election promises have imperiled the economy.

Prime Minister Narendra Modi in his second Independence Day speech had said Rs 6,500 crores of undisclosed income had already come through the compliance window then. The window had started on July 1, and by August 15, it was only halfway through. Under the scheme, those coming forward had to pay a total of 60 per cent tax, which included 30 per cent penalty. The tax and penalty on the income declared under the window was to be paid by December 31. The harsh penal provisions for those not declaring black money and other assets overseas included a 10-year jail term, and even that did not scare the hoarders. A penalty of 120 per cent and a jail term extending up to 10 years under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 hardly acted as a catalyst. The government had egg on its face.

It stood to reason that after such a fiasco, one should have rolled down the shutters. Instead committed to ambition, the government attempted an even bigger aspiration — Income Declaration Scheme 2016. A total disclosure of Rs 65,250 crores of unaccounted wealth in the form of cash and other assets was launched between June and September 2016. Under the scheme, people had to pay 45 per cent of their undisclosed wealth as tax — 30 per cent tax plus a penalty of 7.5 per cent and a similar 7.5 per cent surcharge — but didn’t have to pay the levy upfront or put money for a lock-in period. After the closure of the Income Declaration Scheme (IDS) in September, finance minister Arun Jaitley said a total 64,275 declarations were filed online. But these numbers did not add up and many of the claims emerged as dubious and fraudulent, including the big fat one which stated that `10,000 crores had come in from a single evader. Then came DeMo, which led to anarchic scenes and demand destruction just when the economy appeared to be rebounding last November. Almost in parallel, another attempt was made through the Pradhan Mantri Garib Kalyan Yojana (PMGKY) — the government’s second income disclosure scheme, which was pathetic, availed only by 24,000 people as compared to around 65,000 in the first scheme.

The scheme, which was operational between December 17, 2016 and March 31, had given a fresh window to black money-hoarders to come clean. The total tax amount from the scheme was about `6,000-8,000 crores. The scheme was never kosher for a high level of tax and penalty fixed on the disclosures was one of the key reasons for the scheme not attracting many people. Again draconian sub-text meant no takers — those availing the scheme had to pay 30 per cent tax on the undisclosed income, a penalty of 10 per cent and a surcharge of 33 per cent on the tax paid, which amounts to roughly 50 per cent. Another 25 per cent of the amount was to be deposited in a bank for four years without interest. Many shied away from availing the scheme due to stringent clauses and taxes. Laughable. For the very first overseas amnesty scheme, government policy mavens created such a flawed narrative that everyone ran away. Even the government’s assurance, that information would be kept confidential in terms of Section 138 of the I-T Act, did not see people coming forward. In panic, on September 28, just two days before the compliance window was to shut, a CBDT clarification also did not help. The clarification stated that those declaring illegal overseas assets would not face any penalty or prosecution under the Foreign Exchange Management Act (FEMA) and four other laws — Income-Tax Act, Wealth Tax Act, Companies Act and Customs Act.

Against this, more or less around the same time as our IDS 1, Indonesia rolled out its domestic and overseas tax amnesty scheme. A resounding success — Indonesia introduced its tax amnesty scheme and provided a window between July 1, 2016 and March 31, 2017 for all residents and expatriates to report their undeclared wealth. Reports from Jakarta suggested that $342 billion was declared. President Joko Widodo had launched a massive tax amnesty campaign to repatriate hidden assets. Declare assets and take advantage of a discounted tax rate — as little as two per cent compared with 25 per cent — and, in turn, be part of Indonesia’s future, was the clarion call. Revenue from the nine-month amnesty, continuing through March, promised to build railway networks, ports and airports in a country whose prospects, politically and economically, have been on the ascent, the differentiator being the discounted tax rate and no penal provisions. In Argentina, declarations are estimated to touch $80 billion. In both the countries, the tax charged on disclosed incomes was ridiculously low and there was guarantee of no further penalty.

Overzealousness remains the bane of our policy architects and tax terrorists who seek compliance at any cost. Hounding people has been perfected into a fine art form. If the road chosen is amnesty, then at least get it right by not making it difficult for the evader and offender. By rightly putting the squeeze on him, use the nomenclature of amnesty in its right spirit. And use the proceeds to beef up your infrastructure deficit. We chose to call it IDS. And all fall down.