Lessons Learnt

Last year in June, when the government came up with the four-month disclosure window under The Black Money (Undisclosed Foreign Income And Assets) And Imposition Of Tax Act, giving residents with undisclosed foreign assets a chance to come clean on their tax dues, there were hopes of a 'massive' one-time disclosure of assets.

However, due to stringent provisions - tax rates as high as 60 per cent, fear of harassment post disclosures, delayed clarifications on questions raised by tax experts and by interested declarants, and cash flow constraints of declarants - the disclosures ended up a damp squib. Various estimates had put the value of unaccounted assets stashed abroad at around $400-500 billion. But only 648 individuals came forward to disclose their foreign assets worth a piffling `4,164 crore - less than a billion dollars.

However, the latest tax amnesty scheme - the Income Declaration Scheme (IDS) launched in June - is much improved, indicating the government has learnt from its past mistakes.

Reasonable Tax & Penalty

One of the reasons experts cite for failure of the first disclosure window was the harsh tax rate and penalty, which was 100 per cent the highest tax rate of 30 per cent, or 60 per cent of the value of assets declared. In the IDS, the total payment to be made on disclosed assets is 45 per cent (30 per cent tax +7.5 per cent Krishi Kalyan Cess+7.5 per cent penalty).

Past amnesty schemes were more liberal. The 1997 Voluntary Disclosure of Income Schemes (VDIS) had no penalty or surcharge, and the disclosed income was taxed at only the highest tax rate of 30 per cent. However, the current government believes that such past schemes were discriminatory to honest taxpayers.

Speaking on the topic at a conference, Finance Minister Arun Jaitley recently said that "the violator cannot be given a better facility than that of honest taxpayers, who pay taxes regularly at 30 per cent plus surcharges". At the same time, he says declarants today are still getting a good deal because the 'extra' that they are paying is not very exorbitant given those in the highest tax bracket anyway pay 34.6 per cent.

Prompt Clarifications

Last year, the tax department's delay in issuing clarifications - which kept coming till the second week of September while the deadline for disclosure was September 30 - resulted in fewer people coming forward to disclose their foreign assets. That apart, there were apprehensions that the government might harass in future those who disclosed under the scheme.

This time, the tax department seems to be better prepared. We are still in July and the department has already come out with four sets of clarifications. "The government has been proactive in reaching out to people," says Dinesh Kanabar, CEO, Dhruva Advisors.

The government has also been trying to win the confidence of prospective declarants by reiterating its promise of keeping secret identities of those who disclose their income under the scheme. Jaitley recently said under the Black Money Act, the government has maintained utmost secrecy. "There were wild rumours that those using that window would be harassed subsequently, (but) there has not been a single case of such harassment. Nobody knows who filed those returns. Even when the black money issue was raised in Parliament, we have refrained from making any name public," said Jaitley, reassuring people that secrecy would be maintained in the current scheme.

The I-T department is also approaching chartered accountants, tax consultants, lawyers and industry bodies, and asking them to encourage their clients and members to avail "the last opportunity to come out clean".

Easier Payment Options

In last year's disclosure window, another big issue that declarants faced was that of cash flow, simply because the deadline to pay the outstanding tax was short -- 31 December 2015 - just two months from the declaration deadline of September 30. Those with large outstandings would have struggled to pay it within the deadline.

This time, the government has not only extended the deadline for paying the tax till September 30, 2017, which Kanabar says is "unheard of", it has also allowed the assessees to make the payment in three instalments.

Government in Control

Though experts are non-committal on the success of IDS, they believe that unlike last time, the government has better control over this scheme. They feel that in case of foreign black money, the government is at the mercy of foreign tax jurisdictions.

"In order to track foreign income and assets, invariably the tax treaty or information exchange agreement between India and the foreign country plays an important role as necessary information is to be obtained from foreign tax authorities, which is a long-drawn process," says Vikas Vasal, Partner, KPMG. He also points out that the tax department is better placed in the case of domestic transactions as it has various data points and transaction controls.

The government has been warning tax evaders that this is their last chance to disclose unaccounted assets or income, and that it now has many ways of tracking such incomes. Only last week, the tax department tracked down 700,000 non-PAN, high-value transactions and is planning to send them notices. The government is also working on a 'Project Insight', in which it would use technology to analyse databases of I-T returns, I-T forms, TDS/TCS statements, annual information returns, etc. to track tax evaders.

With all the tools and technology at its disposal, it is to be seen if the government is able to send a clear message to tax evaders and nudge them into making the disclosures under the new scheme.