Paint It Black
The Modi government’s Income Declaration Scheme (IDS) 2016- at 45% tax, cess, and penalty, all inclusive, is rumoured to be turning into a damp squib.
Though the government has not put any figures to the
amounts/values disclosed, and taxes obtained so far, almost at the end of the 4
month period of its currency, this, citing confidentiality - unofficial sources
put it at much less than the Rs.50,000 crores it had hoped to collect.
The government’s ill-conceived scare tactics, a departure from
past, more unctuous schemes, is backed by a recently passed, and as yet untried,
draconian law, against black money hoarders. It has not, reportedly, impressed
the money bags.
They have seen or heard of 10 such schemes already,
between 1951 and 1997, some of which even offered better terms.
This, despite the moral hazard of rewarding tax evaders. But
then, all voluntary disclosure schemes suffer from this infirmity. It boils
down to- does the government want the money or not.
But most were failures still, with only one in 1985/86
yielding Rs 10,778 crores in taxes, and the VDIS scheme 1997, run by then
Finance Minister P Chidambaram, garnering Rs. 33,000 crores. But then, VDIS 1997 charged a flat 30% tax,
with no add-ons.
In the 1997 scheme, and every other past scheme, the ‘voluntary’
tax-payer that did come out of the shadows, to ‘regularise’, mostly his
undeclared immovable property, got away, as a practical via media and
additional hidden incentive, with a massive undervaluation of assets.
It was that, or nothing, for the government. This, at
even 50% of what they were actually market priced at/worth, and so, the tax paid thereby was also at half of the nominal percentage charged to tax. So in
1997, it was just 15%!
Something like that may still be operative in 2016, but
remember that the property market is in a slump at present, and some owners may
think this undervalues their property, even for discounted taxation purposes.
And there was no draconian new law before, or in 1997, to
try out on the unimpressed.
The still unimpressed in 2016 however, are told that much
data has been allegedly mined on him and his doings, to be unleashed once the
amnesty period ends. How this will pan out, remains to be experienced. But the
whole thing does not sound very politic. To annoy masses of urban well-to-do is
not desirable, even for a clear thinking Communist, let alone the BJP.
As it stands, till the 30th of September, only
days away now, no questions will be asked on source of funds as long as the 45%
is paid.
For a while, the administering arm, the Central Board of
Direct Taxes (CBDT), ensconced centre-stage in the Finance Ministry, was itself
confused about whether a person could actually pay the tax and penalties with
black money. But when hardly anyone came forward, the CBDT clarified that the taxes
could be paid using ‘unaccounted for’ cash.
After the deadline, there are criminal prosecutions and
jail sentences lying in wait, per the new laws. And yet, the rumour goes, IDS 2016
will be hard pressed to even recover
the money spent publicising it!
Not that VDIS 1997 did any better 19 years ago, if one
draws up both sides of the balance sheet. I know, for a fact, that the
advertising costs alone, in 1997, was much in excess of Rs. 33,000 crores!
The reason that many people are still sitting on the
fence is, due legal process will have to be followed. And in India, it will
take a month of Sundays, with the eventual outcome, including appeals, pushing
back the final verdict for many years.
For people protecting enormous ill-gotten, or previously
concealed wealth, a long period of ponderous litigation, is just what the
doctor ordered.
A similar prior flop show resulted when this government, went
trying to repatriate concealed and untaxed money of resident Indians stashed
abroad.
This, in order to redeem one of its most memorable election
pledges. It attempted to look in bank accounts, tax havens, properties invested
in abroad, Panama, The Bahamas, etc. But
again, hardly any catch resulted.
The CBDT personnel, clearly out of their depth, were
confronted by a thicket, in places, a veritable tropical forest, of expensive
to probe international and sovereign laws to deal with, holding companies,
proxy directors, cross-holdings involving NRIs, and people with other
nationalities, extradition treaties, and so on.
It is no wonder that most Indian bribe-takers in defence
deals, are so brazen, issuing loud challenges for proof of their involvement.
They know the Indian government cannot catch them, with the best will in the
world, at least, not via due process, and not through that tangled thicket
abroad either. And we have no Abu Ghraib or Guatanamo for tax offenders with en-suite
water boards. At least, not yet.
It is unclear however whom the latest scheme, IDS 2016,
and the threats of retribution, after the expiry of the four-month amnesty
period 1st June to September 30th , is designed to intimidate.
And whom indeed, it aims to please. Where does the politics of the thing lie?
If it is designed to impress the numerous but ordinary,
poor, voter, who pays no tax either way. If so, it is not going to resonate
with his voting bone. Taxes the rich pay, or don’t, are not very high on his
priority list. And neither does it afford him much malicious, vicarious pleasure, to see
traders and businessmen, leaders, sundry grand people, many of whom are his
employers, harassed by a political system
that runs, itself, on- you guessed it, black money!
Large, threatening, print and TV advertisements, that fly
in the face of earlier promises of curbing ‘tax terrorism’, have been roundly
ignored by the target audience.
Presumably, so paltry is the yield, just days from when
the scheme ends, that the infamous raid
parties have reportedly hit the chole bature and jalebi walas in
Khao Gully in Mumbai. This, to try and meet their targets.
A voluntary scheme therefore, has been turned into a
hustle, if not a desperate shambles.
What will happen later? Will recalcitrant people in the
Opposition be targeted using the draconian black money law plus the money found
under his mattress? Will the black money laws become a weapon in the hands of
the government, never mind how much tax money it produces?
But, underlying this cumbersome and slow motion cops and
robbers show, is the undeniable fact of a too narrow taxation base, both in
terms of individuals, numbering just some ten lakhs. This out of a huge
population of 1.25 crores.
There are also some 10,000 listed public companies, and
perhaps ten times that number, private, smaller, small, outside the bourses.
Not a lot, for the essentially rent-seeking CBDT to
harass, even if the foreign investors are roped in.
What is needed desperately is to expand the tax base and
lower the nominal tax rates. P Chidambaram did this in his ‘dream budget’
around the VDIS scheme, citing the tendency towards greater compliance at lower
tax rates (The Laffer Curve).
Since then, nobody has tried to push tax rates down, and
include, say, rich farmers. Will this government do so? If it does, it might
actually collect more taxes and fewer brickbats.
For: The Sunday Guardian
(1,221 words)
September 22nd, 2016
Gautam Mukherjee
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