Black money and corruption. Together, they probably rank among the most hotly debated topics in India over the past few months. It's hardly surprising, since a recent report estimated that Indians hold about $2.5 billion (over Rs 11,000 crore) in Swiss banks, notorious for their secrecy laws.
In fact, another expert claimed that had it not been for the black money squirrelled away abroad, India could have been a $9-trillion economy. There's a lot of interest in knowing what is being done to encourage repatriation of these funds, as well as what action will be taken, if any, against such unaccounted income- and tax-dodgers. Public anger on this issue has also been swelling.
It now seems that the government is seriously considering introducing a voluntary disclosure income scheme (VDIS) to bring back the black money stashed away overseas. Under the proposed scheme, the source of money will not have to be disclosed, but criminal action may be taken if the assets or money stashed have been obtained through criminal activity. The money that flows back will be used to fund infrastructure development. A decision on the scheme is expected from the tax authority, the Central Board of Direct Taxes, later this month.
The timing of this scheme is extremely interesting and suggests the government, already mauled by corporate governance and corruption scandals, is feeling intense pressure to be seen as doing something to handle the issue. It also represents a U-turn in government policy as just as recently as three months ago, the government had denied any plan to introduce such a scheme.
Until now, lack of political will has kept India from pursuing black money overseas aggressively, but with Swiss banking secrecy reeling under relentless US attacks, experts have said it is now time for New Delhi to put pressure on Swiss banks to give up Indian tax evaders with undeclared funds.Last year, amid mounting political pressure, India signed a protocol with Switzerland in August last year to revise the Double Taxation Avoidance Agreement (DTAA). The revised treaty gives India access to Swiss bank account details of its citizens from 1 January, 2011. But that treaty was lambasted by critics for not giving enough access to bank information from previous years.
Indian Swiss bank accounts also hit the spotlight recently when anoted Swiss bank whistleblower, Rudolf Elmer, claimed that politicians, cricket players, managers and film stars were among the Indians holding Swiss bank accounts abroad. The Swiss bank holdings of these celebrities and politicians weren't just in the form of money, he said. These included jewellery, gold coins, paintings in Swiss safes, and could be collectively worth about $1.3 trillion, much higher than known estimates.
On 2 August, finance minister Pranab Mukherjee told the Rajya Sabha he had received "some information" regarding Indian deposits in Swiss banks. It seemed like he was referring to WikiLeaks, which had released a list of names of Indians who had stashed black money in Swiss accounts. The WikiLeaks lead spurred income tax raids last month on big diamond merchants in Mumbai like B Arun Kumar and Co and Mahendra Brothers Exports.
Of course, there is also one more angle to this timing of this scheme: the attempt to bring back illicit funds comes just as the government is struggling to find ways to buoy revenues. Figures for the first quarter (April-June) show that the fiscal deficit is already at 7.9 percent, up from 2.3 percent a year ago, at a time when the economy is slowing and there are growing concerns that tax revenues may not remain buoyant in the second half of the year. The fiscal deficit measures the gap between government spending and revenues.
Introducing a scheme to bring back black money could be one way to shore up spending on much-needed infrastructure in the country. Last year, Goldman Sachs estimated that India needed $1 trillion (government and private funds) to build the infrastructure needed to sustain economic growth at 8-9 percent a year.
So, how successful is the scheme likely to be? India's past two experiences with such schemes have beendismal.However, improved access to information on bank accounts - because of the tax treaties with other countries - might allow authorities to track money trails more efficiently from now on, so it's possible that this time, more money could be disclosed voluntarily. The scheme, in itself, is nothing new and has been implemented in several European countries, the US, the UK, Germany, France, Greece, Italy and Portugal, among others.
The morality of the idea aside (allowing tax evaders to avoid punishment), it's possible to argue that such a scheme can at least attempt to put illicit funds to good use. That's better than losing them altogether forever.
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Updated Date: Dec 20, 2014 04:23:26 IST