Now a govt red carpet for those who have black money hidden abroad - The Daily Reckoning
The Daily Reckoning by Vivek Kaul
On This Day - 20 May 2015
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Now a govt red carpet for those who have black money hidden abroad A  A  A

- By Vivek Kaul

Vivek Kaul
Last week the Parliament passed the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015. This Bill up until now was referred to as the foreign black money Bill. Now it has become an Act.

The Act allows the government to tax those who have undisclosed foreign income and assets at the rate of 30%. No exemptions or deductions as per the Income-Tax Act 1961 will be allowed. Over and above a tax of 30%, there will also be a penalty of three times the amount of tax.

However, the government plans to offer a compliance window. This window will allow those with undisclosed foreign assets and income to declare them, pay a tax of 30% and a penalty of 30% and not face any prosecution.

In fact, The Economic Times reported on May 18, 2015 that: "The income-tax department is likely to set up two centres, in Delhi and Mumbai, to process claims from those with dodgy overseas wealth to declare.";

The cells in Mumbai and Delhi will be manned by senior tax officials whose job will be to ensure that those who come out and declare their undisclosed foreign income and assets are not harassed. It is being suggested that individuals will be allowed a period of two months to declare their undisclosed foreign income and assets and up to a period of six months to pay the tax on it.

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In simple English, what this means is that the government is essentially laying out a red carpet for those who haven't paid income tax on the money that they have earned over the years, created black money and managed to divert that money out of the country.

The ministry of finance 2012 white paper on black money defines black money as: "any income on which the taxes imposed by government or public authorities have not been paid.";

The wealth that has been accumulated in this way "may consist of income generated from legitimate activities or activities which are illegitimate per se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption,"; the white paper goes on to suggest.

Of course this wealth that has been accumulated through tax evasion has "neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.";

And it is these people who will now be welcomed with open arms by the government. The justification offered will be that "but, we are fining them 30% over and above the 30% tax";. Yes, but how does this decision make look the minuscule portion of Indians who have been paying their income-tax honestly over the years.

The annual report of the ministry of finance points out that in a country with a population of more than 120 crore, the number of income tax assessees in the 2013-2014 stood at a mere 4.7 crore. And by laying out the red carpet for the tax cheats, what message is the government sending out to the 4.7 crore individuals who have been paying their taxes?

This is not the best way to go about trying to increase the number of people who pay income tax. In fact, the annual report of the ministry of finance points out that between April and December 2014, just 24.35 lakh fresh assessees were added. The point being that the rate of growth of tax compliance is anyway very slow and on top of that if the government keeps welcoming those who have black money, what future does tax compliance really have in this country?

Instead of welcoming the tax cheats, the government should be naming and shaming them. Steve Levitt and Stephen Dubner make this suggestion in an American context in their new book When to Rob a Bank...And 131 More Warped Suggestions And Well Intended Rants: "Maybe it's time... to launch a War on Tax Cheats. What if they could demonize the tax cheats so thoroughly, emphasizing that the "tax gap"; (the difference between taxes owed and money collected) is about the size of the federal deficit...Maybe they could put pictures of tax cheats on milk cartons, on flyers at the post office, even on America's Most Wanted."; Why can't something along similar lines be tried in India, instead of bailing out the tax cheats?

Further, between April and November 2014, the income-tax department seized assets worth Rs 538.23 crore only. This is hardly anything given the huge amount of black money floating around in the country. And given this, the government should be concentrating its resources in unearthing black money in the country, instead of welcoming those who have accumulated black money over the years.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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6 Responses to "Now a govt red carpet for those who have black money hidden abroad"

Sarat Palat

May 22, 2015

The Govt. is doing something in the matter. The question is are these things only eyewash or in real interest of the nation. The whole nation knows the names of few person involved. Let the authorities start with them and others will fall in line.

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taffazull

May 22, 2015

It would be wise of those who have black money stashed abroad to declare ten percent of the amount under this scheme to make the scheme successfull and so make the Government happy.We love tamashas be it the wooden lions in parades or fanciful schemes for "Ghar Wapsi" of black money.Anything goes that makes headlines in newspapers and keeps the T.V. channels occupied.

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nirmala

May 20, 2015

very well said by shri vivek that tax evaders should be named and shamed rather than adding them in tax payers number.govt is interested only in showing good performance whether by moral r immoral means

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K.C.Sarangi

May 20, 2015

Yes,it is wise & practical to give an opportunity to those who have created black money and managed to divert that money out of the country. Our bureaucracy allowed the black money to be created & diverted in the past and now we should not expect that the system will unearth the black money overnight and the cheats will be penalized.

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Brij singh

May 20, 2015

How a robber can penalise his brother as both belong to same creed.

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Umesh

May 20, 2015

I think there 2 major directions we need to look into:
1) Quick source of income for nation
2) Setting wrong precedence for Tax evaders

1) We all know that (even if we don't want to agree) black money, whether earned by means of illegal activities like smuggling, bribe, commission on govt deals/contracts, stake in return of favour from political parties, etc, is not going to come back to India for simple reason that the amount of black money generated in India is much higher than the demand. Means, India is a major source of Black Money and not an investment market for it. There are very few ways of converting large amount of black money into white within India. Hence all this money goes out of country for investment and conversion to white form and then mostly stays there.

So, if govt is trying to offer a window to bring this money back, in a way it is trying to be 60% successful (30% Tax+30% Penalty) than 100 % which can still make lot of difference for nation. And in any case better than letting this money with foreign bank, which in turn offers loan to our govt. at 30 % P.A. through our own money.
Now if the initiative brings the money back then, basically, 60 % money goes to govt and rest 40 % gets invested within India bringing enough liquidity into the national financial system for funding major growth projects.

2) Once the window is closed, then govt should go full gear on known evaders who didn't comply in past or continue to remain evaders. With these people, the first thing that should be put in place is travel restrictions and then declare them criminal at international levels so that even if they have enough money parked outside country, that cannot be used by these people for any help or investments. These people should be jailed and to be put up for cleaning roads and garbage with Municipal corporation vans.

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