THE Income Disclosure Scheme (IDS) ended on September 30, 2016 and the gains and losses from it can now be assessed. According to Finance Minister Arun Jaitley, there had been a disclosure of Rs. 65,250 crore income with likely tax mop of nearly Rs. 30,000 crore. There is jubilation about the results, which have been compared to the outcome of VDIS (Voluntary Disclosure of Income Scheme) of 1997 where nearly Rs. 33,697 crore were declared with a tax collection of Rs. 9,760 crore.
According to BJP President Amit Shah, the promise given by the BJP regarding black money is ‘fulfilled’ and the tax collected will be spent ‘on development of villages and welfare of poor farmers and youth’. According to the Finance Mininster, tax from IDS will ‘cushion spectrum shortfall’. One view is that it will bring down fiscal deficit. However, the tax collected is so meager that with such an amount the problems in the areas mentioned may be peripherally touched but cannot be solved. More so, when merely Rs. 15,000 crore is to be collected by March 31, 2017. Further, such amount could have been generated within the system itself if the time and efforts put in making the IDS a success were deployed in effectively implementing the income-tax law!
Since nearly 4 months, the normal functioning of the IT Department was in disarray and officers were asked to gear up for IDS. Almost the entire department was directed to make the IDS a success. Senior and middle level functionaries of the IT Department were meeting the taxpayers individually and in groups. The trade, commerce and business associations, professional institutions like ICAI were addressed, SMSs were sent to taxpayers in mass, cajoling, sometime threatening the taxpayers with dire consequences in failing to make declarations. This was going on through the period of 4 months, for which window was open for making declarations. The Prime Minister and the Finance Minister also exhorted the taxpayers to make use of the scheme and make declarations.
Much more was done for publicity. For months almost, in daily newspapers of all languages throughout India, one-page and half-page advertisements concerning the IDS were published. Frequent announcements were made in radio and TV to motivate people to make declarations. Large hoardings were put at conspicuous places about the IDS. A peculiar situation developed, where the IT Department was asking the taxpayers to convert their black money into white with impunity. And, with such all-round efforts, what has been achieved is a tax of Rs. 30,000 crore, which is not even 0.5 per cent of what the country is expected to collect during FY 2016-17? The issue then is, whether these efforts have been worthwhile?
Rejoicing on the basis of absolute figures (supra) and making comparison with two-decade old VDIS figures, is a misconception, inter-alia, for the following reasons:-
- The rate of tax for VDIS 1997 was 30 per cent. Under the IDS, the rate is 45 per cent. By this rate, the VDIS collection in 1997 needs to be stepped up to nearly Rs. 15,000 crore for making a comparison.
- The disclosure amount is actually little less than double of the previous scheme.
- The fact that the number of taxpayers have increased manifold as compared to 1997 has to be kept in view in making the comparison. In 1997, the number of taxpayers was nearly one crore. It is four times more now.
- The economic (GDP) growth has been phenomenal in nearly 20 years in 2016 vis-à-vis 1997.
- The initial exemption limit in 1997 was Rs. 40,000 as compared to Rs. 250,000 now.
IF these aspects are considered, the tax collected and the declared undisclosed amount under 2016 scheme could be said to be at par, if not lower, vis-à-vis the 1997 scheme.
Finally, a cost benefit analysis of the 2016 scheme is necessary. The cost could be reckoned from two angles, namely direct (in monetary terms) and indirect (in non-monetary terms). The cost in monetary terms would be that spent on publicity of the scheme, a figure which needs to be disclosed by the IT Department. Also, there would be monetary loss consequent to one year’s time given for paying the tax on declared income. Further, the date of filing returns was extended from September 30 to October 17 because of IDS. This delayed the payment of self-assessment tax by 17 days, which could have come to the government.
For indirect costs, the following aspects need consideration. Obviou-sly, the quantum of such costs cannot be measured in rupee terms, but is substantial in magnitude:-
- Cost, in money terms, which is attributable to the time spent in persuading the taxpayers to avail of IDS.
- The breach of assurance by the government to the Supreme Court during the writ proceedings regarding VDIS 1997 that it will not resort to any disclosure scheme in future.
- The loss of credibility of the government that it is not able to detect the evaded income and, therefore, has to approach delinquent taxpayers, who have to be gracious to pay some tax to the government as per their generosity with a promise that no action of any kind would be taken against the declarants nor their names declared to anyone.
- Demoralisation of honest taxpayers, who have been discharging their tax obligations in time with conviction year-after-year. But, they have never been thanked by the government for their progressive higher contributions year-after-year to the nation’s tax kitty. What is disgusting for them is that immediately after the conclusion of the IDS, one-page insertions were put in newspapers, thanking the tax evaders, who, after keeping the evaded tax with them for years, paid a paltry amount of Rs. 30,000 crore under the disclosure scheme with impunity from interest, penalty and prosecution and with the assurance that their names would never be disclosed. This is most unfair to the honest taxpayer. Giving thanks was adding salt to injury.
- Defiance of the recommendations of expert tax bodies, like Wanchoo Committee, that have sternly opposed such schemes.The observations are:
- Loss of tax revenues consequent to the government bringing in such schemes periodically, as taxpayers would prefer to evade in the hope that they can make a disclosure when a scheme like the IDS is floated again.
“We consider that a disclosure scheme is an extraordinary measure, meant for abnormal situations such as after a war or at a time of national crisis. Resorting to such a measure during normal times, and that too frequently, would only shake the confidence of honest taxpayers in the capacity of the government to deal with the law breakers and would invite contempt for its enforcement machinery. We are convinced that any more disclosure schemes would not only fail to achieve the intended purpose of unearthing black money, but would have deleterious effect on the level of compliance among the taxpaying public and on the moral of the administration. We are, therefore, strongly opposed to the idea of the introduction of any general scheme of disclosure either now or in the future”.
THE problem of undisclosed income and wealth cannot be tackled by soft measures like IDSs, collecting few thousand crores through such schemes. Such schemes for tax evaded money stashed abroad has been a failure, netting only (approximately) Rs. 2,600 crore, when the quantum of such money abroad is in millions. Actually, this experience should have deterred the IT Department from floating another scheme for domestic black money again and getting disappointing results. Further, the collections are paltry as compared to collections under the amnesty schemes in Argentina ($80 billion) and Indonesia ($227 billion) in the first three months of the 9-month scheme. This shows that Indian people do not wish to avail such schemes despite threat of strong action from the IT Department, which has not happened so far. Hence, floating of IDS was greatly misconceived.
The root of black money problem cannot be solved by taking action by way of disclosure schemes. These show a defeatist approach and are deficient in as much as they merely tap the ‘stock’, not check the flow. Hence, if the government is really serious about unearthing black money, it has to plan effective strategy for checking its generation, punishing evaders sternly and checking flow of such money abroad.
The writer is former Chairman, CBDT