The window surely proved to be highly inadequate
September 30th was the last day of the Black Money Window, where Indians with black money stashed abroad could make a one-time declaration and get amnesty. At the conclusion of the scheme, a total of Rs.3770 crore was collected from 638 declarers. By any yardstick, this number is disappointing. If one recollects the Voluntary Disclosure of Income Scheme (VDIS 1997), it was a major success. Despite the ethical arguments, the scheme was a huge success. Then what went wrong with the Black Money Window 2015?
A very steep tax rate…
The scheme was difficult; to begin with. Those who were taking advantage of the Black Money Window had to pay the 30% tax plus a 30% penalty, taking the total tax payable on declared income to 60%. In contrast, the 1997 VDIS scheme only required the peak rate of tax to be paid, which was a lot more attractive. When the base tax payable itself is 60%, it acts as a major disincentive for individuals to declare their money stashed abroad. Experts feel that beyond a certain point, people prefer to take a chance with the law.
Comfort level was lacking…
One of the primary reasons for the failure of the Black Money Window was the lack of comfort level for declarers. Firstly, there was no assurance that those who declared their foreign income will not be hounded by the tax authorities. Secondly, if the person declaring black money was already under investigation, then the scheme would not be applicable and full penalty would be payable. Obviously, nobody wanted to take the risk of declaring and ending up on a blind date. Lastly, the aftermath of the VDIS 1997 also acted as a disincentive. Back in 1997 the finance minister, P Chidambaram, had assured that declarers would not be hounded. But that is exactly what happened in subsequent years when the government changed. That has made many declarers nervous about making a clean declaration of money abroad.
Many ways to bring money in…
The sad reality is that modern finance offers a plethora of methods to bring black money stashed abroad into India through well-disguised means. Usage of P-Notes for bringing in money from anonymous end-users is quite popular in India. Secondly, over-invoicing and under-invoicing of trade and service transactions is another very well-disguised method of moving money. But the real issue is something different.
Even the US has this problem where US companies have stashed trillions of dollars abroad due to a harsh tax regime. India realizes that bringing all this stash is not all that difficult. Tweak taxes and make opportunities available. The money route will follow! ©
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