Indubitably the well-nigh Rs 30,000 crore in taxes being the bonanza for the Centre as it struggles with shortfall in spectrum sale realization 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 odor of amnesty cannot be disabused as the IDS is patently unethical to the government’s avowed commitment to the apex court. The plain reason for not declaring it as an amnesty scheme is because the latter is grossly unfair to the genuine and honest taxpayers while those evading taxes get not even a bare- knuckle for declaring 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 the cases are almost the same, the quantum realized in the latest was double that of the 1997, 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 is a midget one crore of rupees under the IDS.

Tax experts contend that the IDS is too an immitigably amnesty scheme because the penalty slapped under it is less than what was being imposed on tax evaders before the scheme 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 per cent of the tax evaded, depending on the ‘discretion’ of the assessing officer! Since the tax rate is 30 per cent, the penalty worked out to 30 to 90 per cent of the income evaded. But under the IDS this is only 30 per cent of the tax rate plus the penalty of 15 per cent, making it only 45 per cent! Thus this time round 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 an effective slightly high rate of 45 per cent to get over the sins of the past negligence and willful default.

It needs to be noted that the Comptroller and Auditor General of India (CAG) came out with a report on voluntary compliance encouragement scheme, 2013 of the previous government in August 2016 in Parliament. This was also an amnesty scheme which was introduced for the first time after the advent of tax on services. The scheme was aimed to motivate around one million stop/non-filers to file returns and pay tax dues. Bur only 66,072 declarations were received involving tax of Rs 7,750.30 crore. In his performance audit of the scheme, the CAG said the scheme envisaged grant of immunity for 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 not verified.

Interestingly, the CAG report noted that clarifications given by 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. This resulted in 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 extensive drive to bring evaders to tax net through departmental probe and vigilance wings so as to send a strong message to the defaulters who did not come clean despite the scheme to have effective deterrent effect and also to boost the morale of regular tax payers. 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 obvious loopholes in the IDS 2016 so that the faith of the 4.33 per cent 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 get conducted through informal channels and transactions beyond the ken of tax officials which amount to about 20 per cent of 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 per cent 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 party after party draws attention to the deleterious consequences of not plugging the loopholes in the tax system to arrest widespread tax evasion. 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 begin from their own backyard by first and foremost making electoral funding transparent so that the after-effect of victory to please corporate donors do not contribute to all sorts of shenanigans the nation is privy to with the helpless people watching in silence and impotent fury. 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. (IPA Service)