Here's a strategy for a BJP govt to bring black money back to India and reap $30 bn

Given its stated aim of bringing back black money stashed abroad by Indians, the Bharatiya Janata Party (assuming it comes to power) should consider an amnesty scheme on the lines of the Voluntary Disclosure of Income Scheme in 1997, feels brokerage house Jefferies.

This could help the new government raise as much as $30 billion in taxes, says a note by the brokerage.

“Even globally, voluntary disclosure seems to be the most popular mechanism with countries such as the U.S., U.K., Australia and many others introducing VDS in some form or the other,” says the note, pointing out that the US and Italy netted 3.6 billion euros and 5.6 billion euros, respectively, between 2009 and 2011 through tax amnesty schemes.

Jefferies estimates the amount of black money in the country at 20-30 percent of GDP, or roughly between $300-500 billion.

“In our view, a voluntary disclosure scheme, if successfully implemented, could lead to income declarations of nearly USD 100 billion (around 6 percent of GDP) and tax collections of up to USD 30 billion (around 1.7 percent of GDP), and could help solve several issues at the same time,” said the note adding that it would have a significant impact on fiscal deficit and balance of payments.

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In 1997, the United Front government had raised around Rs 10,000 crore in taxes through VDIS, a brainchild of the then Finance Minister P Chidambaram. While the scheme was a success and boosted the government’s coffers, it sparked outrage as well. A public interest litigation was filed in the Supreme Court arguing that schemes like VDIS penalised honest tax payers and at the same encouraged tax evaders.

The government then had to give an undertaking to the Supreme Court that the VDIS was the last of its kind, and the government would not bring about such schemes in the future.

In last year’s Budget, the government had announced an amnesty scheme for service tax offenders, termed Service Tax Voluntary Compliance Encouragement Scheme. The scheme was in effect till December2013 and is learnt to have fetched the government around Rs 6000 crore.

Finance Minister Chidambaram said the government will not be able to announce any more amnesty schemes for the next 20 years, due to various factors, including curbs imposed by the Supreme Court.

“Such schemes cannot be announced every year. There is a Supreme Court judgement on VDIS which actually ties up our hands in announcing a scheme on the lines of VDIS,” Chidambaram was quoted as saying by the PTI.