The article analysis the Income Declaration Scheme of the government giving opportunity to declare black money.
- The Income Declaration Scheme (IDS) announced in the 2016-17 budget has been described as successful by finance ministry.
- The amount declared is the largest amount declared as black money in the history of Indian taxation.
- The average amount of black income per declaration is about Rs one crore. This is indeed low when there is daily news about people being caught with hundreds of crores of rupees of black incomes.
- It is likely that either the big earners of black incomes have not come forward or declared a negligible part of their black money. It is reported that the income tax officers pressurised people under their charge to make declarations in the last three weeks.
- Also, many of the black income earners do not pay any tax. So they do not come under any income tax circle and, therefore, would not have been under any pressure.
Comparison with 1997 scheme:
- The last disclosure scheme was announced in 1997 — the Voluntary Disclosure of Income Scheme. Under it Rs 33,000 crore was declared and tax of about Rs 10,000 crore was collected.
- The 2016 scheme is also a “voluntary” programme, even though it is not called that. The 1997 scheme was called an amnesty scheme because of the low tax that had to be paid.
- But this time, it is not referred to as an amnesty because a higher rate of tax is being charged.
- The government had also given an undertaking to the Supreme Court in 1997 that it would not initiate any more amnesty schemes. The reason being that an amnesty scheme is unfair to the honest tax payers while those evading taxation get a concession for declaring their past income.
- But the IDS is also an amnesty scheme because the penalty charged under it is less than what was being charged for tax evasion before the scheme was launched.
- Before June 2016, if a person’s income was found to be black, the penalty was 100 per cent to 300 per cent of the tax evaded but the amount to be paid is less in IDS.
- In this sense, the IDS runs counter to the government’s commitment to the Supreme Court in 1997.
- The comparison of the 1997 and the 2016 schemes does not show the latter in a favourable light. The declarations under the 1997 scheme was roughly five per cent of the black income generated that year but by any account the declaration are very meagre in this scheme.
- From the black incomes generated every year, a part is consumed and the rest saved. Over time, the accumulated savings become much larger than the annual income.
- For the rich, the savings from incomes are high, so the black wealth accumulated is much larger than their annual black incomes.
- Data suggests that only a small part of these black savings are declared under the amnesty/declaration schemes. Thus, barely 0.2-0.3 per cent of the black wealth has been declared in the 2016 scheme.
- The number of declarations in 1997 was over four lakh; now, surprisingly, it is a sixth of this number.
- The number of businesses, professionals, corrupt officials and politicians has risen over time. So, the number of people with substantial black incomes and wealth should have been several times the number in 1997.
- Even if it is assumed that the top one per cent of the population generates substantial black incomes, the numbers should have been close to 13 million.
- The government has announced that it would not reveal any of the data collected through the scheme to any agency; not even the CAG. This is strange since CAG is a statutory body with powers to audit the accounts of the government.
- It is the CAG that pointed to the various infirmities in the 1997 scheme. Giving data to the CAG does not violate any confidentiality.
- It needs to be assessed whether those declaring their black incomes are doing so correctly. Only an assessment by an independent auditor will help unearth such manipulations.
Reasons for less declarations:
- Round tripping costs between 5-10 percent hence no point in paying 45 per cent to government.
- Voluntary nature of the scheme.
- Information gap.
- Lack of fear among black money holders.
- The “success” of the IDS scheme in the last three weeks also suggests that if the income tax department applies pressure, black money can be unearthed. The government seems to be trapped between unearthing black money and not applying pressure on businesses.
Amnesty scheme is unfair to the honest tax payers while those evading taxation get a concession for declaring their past income. Discuss. Do you think aggressive approach by income tax department can yield better result than these schemes.
- Why government use amnesty schemes.
- How these schemes are unfair to honest tax payers.
- Limitations of income tax department to unearth black money.
- Strengthening the income tax department and other measures which can be taken.