K R Sudhaman/
Government, irrespective of which party is in power, often say that there should be no tax amnesty scheme to deal with black money as it punishes honest taxpayers and rewards dishonest taxpayers. This statement is made by politicians when in opposition but in government they speak differently and contemplates of a tax amnesty scheme to convert ill-gotten money into white by those who have stashed it abroad.
Prime Narendra Modi government seems to be no different, Just as previous governments, Modi after having failed in his election promise to bring back the black money stashed abroad, is now contemplating an amnesty scheme, perhaps to find the much needed resources to fund the huge money required for infrastructure development.
Every time a tax amnesty scheme is announced, government swears that this would be the last chance for black money holders to come clean. But unfortunately so far it has neven been the last chance and amnesty keeps coming again making people bolder and fear less and are confident that thy would get a chance periodically to come clean despite amassing huge amount of unaccounted money.
The amnesty schemes are invariably called voluntary disclosure schemes and it has been announced on a regular basis right from 1961 and is often used as a tool to find additional resources whenever government's fiscal situation is not that good. While the first amnesty scheme in 1961 resulted in Rs 70 crore of black money being brought in to the tax net, the last one in 1997 helped the government to unearth a little over Rs 30,000 crore unaccounted money. Since then there has been widespread debate on whether there should be an amnesty scheme or not but ultimately people in the corridors of power feel this is the only way forward. This helps in getting some money in to government kitty as well as help black money holders to convert some money stashed abroad into white. The country benefits in the sense the money is ploughed back into some developmental activities.
Black money gets generated because tax laws are not simple. Law makers ensure that tax laws are made in such a way that it is subject to interpretation. This gives politicians and bureaucrats discretionary powers. Rent-seekers benefit in the process generating black money. to provide. This is one of the reasons why tax laws are not made simple and exemptions removed. Loopholes in law helps in government and industry to interpret in a manner it wants. The legal fraternity too benefit out of it. There are evidences to show that lower the taxes, higher the compliance and the reason that taxes are not lowered further in India is because there are several exemptions leaving little room for government as it has to find resources to fulfill social and development objectives.
Top industrialists too want the government to retain this discretionary power so that they can bribe their way so they have an head start over other smaller but competing aspirants. There is no level playing field as new comers costs are higher by 30 per centbecause of the taxes as they do not get exemptions as they cannot bribe their way.
To cite an example, an across the board 20 per cent minimum alternate tax on gross profit as proposed in the original draft of Direct Tax Code would have ensured there is virtually no black money generation by industry. But no one seemed to want it and the suggestion has been thrown into the dust bin with tax experts describing it is as draconian.
Exempting agriculture income from tax is yet another example as this is invariable abused by the rich and famous in the country to evade tax. If the government is serious about protecting poor farmers they could always have a higher threshold limit instead of exempting farm income totally. Taxmen say collection of agriculture income tax in cumbersome. But in reality it is one channel to convert black money into white. Of course agriculture income is a state subject but constitution can be amended if government is serious about bringing it into the tax net. Also from equity point of view it is important every individual irrespective of his occupation should pay tax beyond a threshold for equity. At the moment an individual earning Rs 5 lakh pays no tax if he is a farmer, some income tax, if he is professional like doctor and a little more if he is a industrialist as he gets lesser exemptions than a professional. A salaried person pays the highest income tax as his exemptions are the least. Ideally one should remove all exemptions have simple income tax with three slabs of 5,10 and15 per cent income tax beyond a threshold so that there is equity. Lkewise there should be corporate tax at a lower rate without any exemptions. GST will rationalise indirect taxes to a large extent. If this is done black money generation would reduced to a large extend.
Indians have stashed abroad up to $1.4 trillion of ill-gotten money. An additional $640 billion of black money has been generated domestically due corruption right from getting driving licence or birth certificate to getting an industrial license. Systemic changes like computerisation railway tickets, digitalisation of administration, simple tax system will help to prevent black money generation. The country would benefit more from this rather than periodic amnesty scheme as prevention better than cure.
(K R Sudhaman, who has over 40 years experience in journalism, has been editor in Press Trust of India, TickerNews and Financial Chronicle)