A CASE OF OSTRICH SYNDROME
After the abysmal failure of the scheme known as the limited period Compliance Window under Black Money (Undisclosed Foreign Income and Assets ) and Imposition of Tax Act, 2015 for declaration of unaccounted black money stashed abroad, the govt had temerity to announce yet another scheme for domestic taxpayers to declare undisclosed income or income represented in the form of any asset in India and clear up their past tax transgressions by paying tax at 30%, surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. The scheme promises immunity by exempting declared assets from Wealth Tax, scrutiny/enquiry and prosecution under Income Tax Act/Wealth Tax Act, and immunity from Benami Transactions (Prohibition) Act, 1988. During his radio programme, Mann ki Baat on June 26, 2016, the Prime Minister exhorted the black money hoarders to disclose it before September 30, 2016 to avoid future difficulties. He also emphasized that this is the last chance to do so.
That the scheme is bound to be a resounding failure can be predicted on the basis of the findings of the committees which looked into the various aspects of the previous VDS schemes. After studying the first three VDS schemes, the Wanchoo Committee had concluded way back in 1971 that
“We consider that a disclosure scheme is an extraordinary measure, meant for abnormal situations such as after a war or at a time of national crisis. Resorting to such a measure during normal times and that too frequently, would only shake the confidence of the honest taxpayers in the capacity of the Government to deal with the law breakers and would invite contempt for its enforcement machinery. We are convinced that any more disclosure schemes would not only fail to achieve the intended purpose of unearthing black money but would have deleterious effect on the level of compliance among the taxpaying public and on the moral of the administration. We are, therefore, strongly opposed to the idea of the introduction of any general scheme of disclosure either now or in the future.”
Similarly, Shanker Acharya Committee (1985) concluded that
‘VDS do not blunt the underlying cases of black income generation. If anything, by holding out hopes of repetition in the future, such schemes reduce whatever deterrent effect exists in the current provisions for penalty and prosecution. With the incentives for black income generation unaltered (or worse, enhanced), there is little reason to credit VDS with any long-term effectiveness in the fight against black incomes’.
PAST SCHEMES – A HISTORY OF FLOPS
After independence, a number of VDS and other schemes were launched without any success. The table below gives the list of schemes floated by the government in the past.
|S. No.||Name of the scheme||Year||Income/wealth/Assets
Declared (in Rs. Crore)
(in Rs. Crores)
|3||VDS 1965 (No. 2)||1965||145||19.45|
|4||Voluntary Disclosure of Income and Wealth Act , 1975||1975||746.07 (Income)
|249 (Income Tax)
7.7 (Wealth Tax)
|5||Special Bearer Bonds (Immunities and Exemption) Act, 1981||1981||Bonds sold of the value of Rs.964.25 crores|
|6||Disclosure Schemes through administrative circulars, 1985||1985
(Nov. 1985 to March 1987)
|2940.37 (Income Tax)
7837.97 (Wealth Tax)
|388.03 (Income Tax)
|7||National Housing Bank (Voluntary Deposits) Scheme, 1991||1991||Deposits of Rs.154 crore received|
|8||Remittances in Foreign Exchange (Immunities) Scheme,1991 and India Development Bonds Scheme, 1991||1991||Foreign exchange equivalent to Rs.6400 crore was collected under these two schemes|
|9||Voluntary Disclosure of Income Scheme, 1997||1997||33289||9745|
Though the Government denied that it was a VDS/ Amensty scheme, the creation of limited period Compliance Window under Black Money (Undisclosed Foreign Income and Assets ) and Imposition of Tax Act, 2015 managed to collect Rs. 446.80 crore (up to 16.112.2015) as taxes on undisclosed foreign assets worth Rs.4164 crore.
In their audit report on VDIS-1997, the CAG pointed out several lacunae in the scheme. One of most disturbing distortions was: though the scheme debarred those involved in criminal cases, narcotics smuggling and similar offenses, it was found that several beneficiaries were violated these norms. Further, the value of declared assets was found to be grossly undervalued. Later on, it was also found that the declarants did not file wealth tax returns in the subsequent years.
GOVERNMENT’S ASSURANCE TO THE SUPREME COURT
At the time of VDIS in 1997, a petition was moved in the Supreme Court by the All-India Federation of Tax Practitioners, stating that such a practice was discriminatory against those who paid their taxes regularly and dutifully. To get over this valid objection, the government had to give an undertaking to the Supreme Court that the VDIS was the last of its kind, and it would not bring about such schemes in future. Any future scheme, thus, required prior approval from the Supreme Court.
Thus, taking all these factors into consideration, it can be safely assumed that the on-going VDS scheme is not only a living testimony to ethical elasticity of the present dispensation, but is also immensely harmful for the economy in future. It is, therefore, high time the government applies its mind before launching schemes which have deleterious effect on the economy of the country. How I wish, I had Mr. Jaitley as my counsel to argue against the scheme in the Supreme Court. But then the life is full of irony !!!
By Vimlesh Kumar