The Modi government could net a handsome Rs 20,000-25,000 crore in taxes and penalties under a special three-month compliance window opened in early July for Indians to reveal their undeclared overseas wealth, people aware of the trend in these disclosures told FE. Given that taxes would roughly be a third of the size of undeclared assets and equivalent penalties are prescribed, such wealth declared by the people who used the window could be over R40,000 crore.
The substantial additional tax collections via this limited compliance window, sources said, would offer a peek into the mammoth size of India’s black economy, which still remains largely veiled. These receipts would also be a shot in the arm for the Modi government, which is facing criticism for allegedly not doing as much it had promised at the hustings to dismantle the black economy.
Taxes and penalties collected from users of the compliance window under the new black money law would also help the Centre in fiscal management.
It needs to bolster public expenditure to spur economic growth, even as it is constrained by the emerging liabilities from the recently announced one rank, one pension policy for the armed forces and the additional budgetary allocations promised for recapitalisation of public sector banks.
The current compliance scheme is for bringing out only hidden foreign assets of Indians, whereas the black economy has a substantial domestic component too (the Voluntary Disclosure of Income Scheme of 1998 had accepted declarations of unaccounted wealth of more than Rs 7,000 crore held by about 3.5 lakh people). Also, the latest disclosures might only be a fraction of even the unaccounted money stashed abroad.
Although the disclosures under the current compliance scheme would have to made latest by the end of this month, the tax and penalty collections could be completed by December. The compliance period offers a chance to avoid 120% penalty and three to seven years’ rigorous imprisonment provided for in the Undisclosed Foreign Income and Assets (Imposition of Tax) Act brought in this year.
The size of India’s black economy has been variously estimated and conjectured: While Delhi-based think tank NIPFP had estimated it at a fifth of then GDP in 1984, the same agency along with two others (NCAER and NIFM) assessed the same again as assigned by the UPA government in March 2011 and is reported to have arrived at much higher figures, though officially this has not been disclosed. According to Washington-based Global Financial Integrity, between 2003 and 2012 itself, there were “illicit outflows”from India to the tune of $440 billion. 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.
The disclosures of hidden foreign assets under the current compliance window are less than 0.3% of the size of the India’s (nominal) GDP of Rs 141 lakh crore estimated.