The one-time opportunity offered to holders of hidden overseas assets to avoid prosecution under a new stringent black money law by paying 60% of such wealth in taxes and penalties yielded disclosure of a measly R3,770 crore, proof that dismantling the parallel economy would not be an easy task for Prime Minister Narendra Modi, who had made it an electoral promise last year.
The finance ministry stated on Thursday that 638 declarations were received under the three-month compliance window that closed at midnight September 30. The tininess of the disclosure would be apparent when seen against the Voluntary Disclosure of Income Scheme of 1998, which had yielded declaration of unaccounted wealth of more than R7,000 crore held by about 3.5 lakh people/entities. The size of the economy then was roughly a tenth of the present one. The 1998 scheme, of course, covered unaccounted wealth held both in India and abroad,
The ministry, however, sought to hide its dissatisfaction with the tepid response to the scheme, saying that no target was set under it.
The scheme’s intent, according to officials, was to give people/entities a chance to escape the perils of an imminent crackdown. Experts attributed fear of lack of confidentiality as one of the reasons for the poor response to the scheme.
“Lack of trust in respect of keeping the information strictly confidential, onerous disclosures and valuation rules and insufficient time given to potential the respondents have contributed to (the poor response),” said Amit Maheshwari, managing partner, Ashok Maheshwary & Associates.
Divya Baweja, partner, Deloitte Haskins & Sells, however, said that the declarations received were an achievement although the government may have had a higher estimate. “Due to this shortfall, it is possible the government may step up the process of seeking information from various overseas jurisdictions to strictly enforce the provisions of the black money Act,” said Baweja.
The 638 people who have reported unaccounted foreign wealth will get immunity from prosecution for violation of laws dealing with direct taxes, foreign exchange, companies and customs, if their returns are accepted. The scheme does not cover proceeds of crime as well as already detected cases of unreported foreign assets. Evaders not availing of the scheme, if caught, are liable to face 120% penalty and 10 years’ rigorous imprisonment under the black money law, besides confiscation of the assets concerned under the Prevention of Money Laundering Act.
Although there is no accurate estimate of the size of the black economy, some agencies had pegged it at 20% of the size of the economy three decades ago, and many others at far higher levels since, while conjectures have been made based on unconfirmed reports of Indians’ unaccounted overseas wealth. The BJP had, in a 2011 report, said that Indians had hidden $250 billion, nearly a fifth of that year’s GDP, in Switzerland alone.
Besides proceeds of crime, the parallel economy represents the extent to which national income and output estimates are understated by people for evading taxes and for avoiding other compliance requirements. A special investigation team (SIT) led by justice MB Shah recently probed more than 628 Swiss bank accounts based on a list shared by the French government with India in 2011. The tax authorities are in the process of taking action in more than 400 cases, which had a net peak account of about Rs 4,500 crore.
In fact, the income tax department, which has set in motion an information exchange deal with the US from September 30, has already shared details of Americans’ assets in India with the US Internal Revenue Service and is expecting similar details about Indians’ unreported assets in the US. The Swiss government, which had initially said it would not share details of Swiss bank account holders with India if information is sought based on what it called the ‘stolen’ list of HSBC account holders, subsequently agreed to change its domestic law to assist India’s probe.
The black money estimate covers not just individuals but also instances of income suppression by businesses. These include outright understatement of turnover by clearing goods from factories without paying duties, fudging of accounts and invoices to show higher spending and lower receipts, wrongful claim of tax credits, manipulation of parent-subsidiary transactions through transfer pricing and shifting of profits from a country of economic activity to one of lower tax rates. More than 60% of world trade is between associated enterprises, bringing parent-subsidiary transactions in focus of tax authorities.
The SIT had suggested tighter oversight of participatory notes issued by foreign portfolio investors in a bid to check black money coming back to India in the form of investments. India’s large public procurement also is seen as an area that breeds corruption and generation of black money. According to the Competition Commission of India, India’s total public procurement is to the tune of Rs 10-11 lakh crore a year.
Tip of the iceberg
638 Indians declare unaccounted overseas assets of R3,770 crore under special three-month compliance
window that ended on Wednesday.
Analysts say disclosures only a small fraction of such assets; the 1998 VDIS led to declarations of unaccounted wealth of R7,000 crore held by about 3.5 lakh people.
Govt says it no target in mind, intent was citizens not caught unawares in imminent crackdown; I-T Dept seeks details of Indians with assets in US under anti-evasion deal.
Estimates of back economy nebulous and diverse, range from 20% GDP to much higher figures; nominal GDP
seen at Rs 141 lakh crore for FY16.