Tax evader crackdown justified if it is PM Modi's last amnesty scheme

Don’t be surprised if some of us get a mail from the Income Tax authorities seeking the details of a property purchased in the past or a high-value cash transaction done without a PAN number or, in other words, without paying tax to the government. Going by reports, tax authorities are planning to send as many as 7 lakh notices to identify tax evaders. This exercise should begin soon. The idea is to encourage tax evaders to make use of the current amnesty-like scheme for tax evaders. The scheme is open until 30 September for declaration under which the black money holders can come clean paying a 45 percent penalty. If the claim of the IT department that it has details of 90 lakh transactions since 2009 is true, all those who made huge gains then by not paying tax will be soon losing sleep. However, honest taxpayers need not worry. Such a crackdown is warranted since the chunk of unaccounted cash going around in the domestic market, in real estate transactions and gold, is huge and no less important than chasing the black money stashed abroad. [caption id=“attachment_2646814” align=“alignleft” width=“380”]  Prime Minister Narendra Modi. Reuters[/caption] More importantly, it is highly crucial for the Narendra Modi-government to send a signal to lawbreakers and honest taxpayers that amnesty-like schemes for black money holders wouldn’t be a continuing, annual exercise and the current one is the last. Once the 30 September window is over, it is important to crack down with full force on those who refuse to comply. The reason is the honest taxpayer may feel that he is being unfairly treated and this may lead to bigger issues. Already, the Narendra Modi government has given two back-to-back schemes to black money holders. The latest scheme treats lawbreakers with kid gloves. The government has said that those who would want to declare their ill-gotten wealth by 30 September (when the window closes), need not have to hurry to make payments by 30 November. They can do it in three easy installments – 25 percent by 30 November, another 25 percent by 31 March 2017 and the balance amount by 30 September 2017. “Taking into consideration the practical difficulties of the stakeholders, the Government has decided to revise the time schedule for making payments under the Scheme as under,” said the government statement. “It has also been mentioned that for making payment by November 30, 2016, the declarants may have to opt for distress sale of the assets," it added. In other words, the government doesn’t want those who generated unaccounted wealth by painstaking efforts of years to go through mental stress thinking how to pay penalty immediately. They can take their own sweet time to sell off their ill-gotten assets and pay the penalty. Arguably, there was never a time in the past when black money holders were given such relaxed terms to disclose their ill-gotten wealth. One can’t blame those honest citizens who regularly pay their taxes before the deadline to be tempted and jealous of their not-so-honest counterparts. Finance minister Arun Jaitley hasn’t called the current scheme an amnesty, but in principle, it is nothing but an amnesty scheme offered to holders of unaccounted cash. The first was in 1997, during the Congress-led government, when P Chidambaram was the finance minister (when the government collected Rs 10,000 crore). That time, the scheme was even more benign with tax evader having to pay only 30 percent tax. The first scheme of the Narendra Modi government came when it got elected. The government announced a 90 days amnesty-like window for foreign black money holders charging them 60 percent tax. A total of Rs 4,147 crore of undeclared wealth was declared and the government garnered Rs 2,500 crore from the whole exercise, a paltry sum considering the kind of black money stashed abroad. This time, the window is open for both resident and non-resident black money holders. There aren’t two opinions about the intention of the government behind such schemes. It wants to bring back the unaccounted cash into the system. But the larger point here is, by extending a helping hand to black money holders, the government is being unfair to the honest taxpayer. This will send a signal to the latter that it doesn’t make sense to pay tax anymore. Instead, the better idea is to stash it in real estate or gold (where black money is easily accepted), below the bed or safe or in the septic tank and wait for the next round of amnesty to come clean! Sudhir Kapadia, National tax leader of EY India, said honest taxpayers already feel that they are being unfairly treated by the system. “The amnesty schemes do not make the situation any worse than what is already present. There are a group of honest taxpayers and there are people who regularly under-report their income and do not pay tax,” Kapadia said. “Whatever money comes out of this exercise, however small it is, is good for the system, also considering the future earnings of this capital,” said Kapadia. According to him, the indications from the government are that this will be the last such exercise. Both the Justice K N Wanchoo committee 1971 and the Shankar Acharya Committee in 1985 had pointed out the ill-effects of black money voluntary declaration schemes in an economy if there is no compelling reason to resort to such schemes. “Resorting to such a measure during normal times and that too frequently, would only shake the confidence of the honest taxpayers in the capacity of the government to deal with law-breakers and would invite contempt for its enforcement machinery,” the Wanchoo panel had said in 1971. The short point here is that the Modi government’s crackdown on tax evaders, both individuals and institutions, is justified if there is an assurance that there will be no more amnesty schemes and this one is the last.