Black money disclosures: A year of carrots and sticks

The year 2016 can well be labelled as the domestic black money retrieval year that saw the government follow a carrot-and-stick policy, nudging hoarders to come clean on their own by paying a penalty before the Income Tax Department showed the stick.

The Income Declaration Scheme-2016 (IDS-2016) launched from June 1 for four months allowed people to declare their unaccounted income by paying a 45 per cent tax and assuring them of complete secrecy and no prosecution — before the demonetisation surprise was hurled.

“One can say that the government’s attempt was to follow a carrot-and-stick policy. The government gave an opportunity to people holding unaccounted money to disclose their wealth and come clean by paying a 45 per cent tax (inclusive of penalty and surcharge) under the IDS before the demonetisation move,” Girish Vanvari, Head of Tax, KPMG in India, told IANS.

Multiple comparisons were made of the IDS-2016 with the earlier Voluntary Income Disclosure Scheme (VIDS) brought during the time of former Finance Minister P Chidambaram in 1997 in which the effective rate of tax was in single digits.

In IDS, after final reconciliation, the actual declarations received and taken on record were Rs 67,382 crore made by 71,726 declarants. IDS-2016 is expected to fetch over Rs 30,000 crore in direct tax revenue to the government while the Voluntary Disclosure Scheme of 1997 resulted in disclosure of Rs 33,000 crore and collection of Rs 9,760 crore worth of taxes.

The IDS required the declarants to pay 25 per cent of the tax in the first tranche by November 30, another 25 per cent by March 31, 2017 and the remaining by September 30, 2017.

The Rs 13,860 crore declaration by Ahmedabad-based Maheshkumar Champaklal Shah, and a Rs 200,000 crore declaration made by Abdul Razzaque Mohammed Sayed, resident of Mumbai, proved false. As expected, the two declarants did not make any payment by November 30, the last day to pay the first installment of the tax under IDS.

“The government did well in being cautious and not including those declarations in the IDS disclosures figures that were made public. Had the government included the same in the estimated tax collection and if they had not materialised, they would have cut a sorry figure. One may say that the government’s prudence paid off in this case. We believe that there would be investigations and appropriate punishments in these cases,” Vanvari said.

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