In para 102 of the Budget Speech, Finance Minister Arun Jaitley announced a new comprehensive law on black money to specifically deal with such money stashed abroad. To this end, he introduced a Bill in Parliament titled Foreign Income and Assets (Imposition of Tax) Bill, 2015 [referred to as Black Money Bill in short). It has 88 clauses and is expected to come into force on April 1, 2016, i.e. from FY 2016-17 [AY 2017-18]. The most regrettable feature of the Bill is the chapter dealing with amnesty for foreign taxpayers, who repatriate their undisclosed foreign earnings and wealth to India within the stipulated time. The date of the applicability of the amnesty provisions and how long the same will be applicable have not been indicated. It may be six months or so, I believe.
What amnesty provisions provide
[i] The Bill envisages, inter-alia, penalty @90 per cent on those who have undisclosed foreign assets and income overseas. But there will be an option to pay the tax and a penalty equal to 30 per cent of the value of undisclosed assets and no prosecution.
[ii] The Bill has detailed provisions to ensure that the provisions of the Bill are not misused by assessees and tax authorities.
[iii] Tax evasion offences would be non-compoundable.
[iv] The offenders cannot move the Settlement Commission.
[v] Penalty for any such concealment of income and assets, thus, shall be at the rate of 300 per cent of tax evaded. The present law provides penalty from 100 per cent up to 300 per cent. The proposed law is more stringent.
[vi] Non-filing of return or filing of return with inadequate disclosure of foreign assets shall be liable for prosecution with punishment of rigorous imprisonment up to seven years.
[vii] Any income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset shall be taxable at the maximum marginal rate and shall not be eligible for any exemptions or
deductions, which may otherwise be applicable in such cases.
[viii] Beneficial owner or beneficiary of foreign assets shall also be mandatorily required to file return, even if there is no taxable income.
[ix] Abettors of the above offences, whether individuals, entities, banks or financial institutions, will be liable for prosecution and penalty.
[x] Every person holding a foreign account shall have to mandatorily furnish details pertaining to the date of opening of the account in the return of income.
[xi] Apart from penalty, the Bill provides imprisonment of up to 10 years for concealment, non-disclosure, false declaration as well as abetment. The provision for abetment can put financial advisers and chartered accountants in the crosshairs of the law should they be deemed guilty of cooking the books.
[xii] Authorities have tried to distinguish ‘open window’ offer and amnesty on the ground that in amnesty, one pays only the tax and not the penalty while
in ‘open window’ offer, both tax and penalty would be payable.
[xiii] The ‘open window’ offer is intended for persons who have hidden assets abroad but want to come clean and avail of the opportunity.
[xiv] It has been claimed by the Secretary (Revenue) that the open window offer is not a ‘revenue mobilisation measure’ [then what is it?].
[xv] Apart from the penalty, the legislation also lists a 10-year jail term for ‘wilful attempt to evade tax’. Anyone who possesses or controls documents or books of accounts with false entries or statement, willfully omits entries or statements in the papers, or takes steps that result in tax evasion, will be treated as wilful evader.
[xvi] Penalty and prosecution provisions in a nutshell are:
• Undisclosed foreign income and assets to face 30 per cent tax, 90 per cent penalty.
• The tax department can also launch prosecution, resulting in 3-10 years in jail for evasion.
• Up to 7 years jail for non-disclosure of foreign assets, income and interests in foreign firms beyond Rs. 5 lakh.
• Those abetting false statements face 6 months to 7 years in jail, possibly bringing advisers, and banks in purview.
Some undesirable aspects of the provisions
There are certain undesirable aspects concerning the amnesty provisions of the Bill, which need
[i] The government has felt shy in calling the aforesaid provisions concerning lenient provisions / amnesty provisions. In the press briefings, these have been referred to as an ‘open window’ scheme by the Finance Minister and ‘one time compliance’ by the Secretary (Revenue). In sum and substance, the provisions are simple amnesty provisions, which provide lighter penalty and no prosecution. This is because of the fact that during the challenge of VDIS, 1997, in the Supreme Court, an assurance was given by the government, that no more amnesty schemes will be introduced. Different phrases are being coined to get over the assurance to the Supreme Court. But what needs to be seen is the substance of the provisions, not the language employed.
[ii] The Bill envisages, inter-alia, penalty @90 per cent on those who have undisclosed foreign assets and income overseas. But there will be an option to pay the tax and a penalty equal to 30 per cent of the value of undisclosed assets and no prosecution.
[iii] Revenue from such schemes to have been meagre as can be seen from the table.
[iv] It is becoming a common practice to call amnesty schemes ‘one-time schemes’. Recently, amnesty for service tax evaders was announced by the finance minister while presenting the Union Budget for the year 2012-13, saying:
“While there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 file returns. Many have simply stopped filing returns. We cannot go after each of them. I have to motivate them to file returns and pay the taxes. Hence, I propose to introduce a one-time scheme called ‘Voluntary Compliance Encouragement Scheme’. A defaulter may avail of the scheme on condition that he files a truthful declaration of service tax dues since 01.10.2007 and makes the payment in one or two instalments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assessees to return to the tax fold. I also hope to collect a reasonable sum of money” [para 183].
Thus, for service tax, a ‘one-time scheme’ has
been accepted to be equivalent to an amnesty
scheme. There is no reason why the revenue
secretary should feel shy in calling ‘VDIS’ for foreign black money amnesty.
[iv] Why amnesty schemes should be shunned
[a] They generate little revenue;
[b] They demoralise honest taxpayers.
[c] Floating disclosure schemes at frequent intervals passes wrong signals to the taxpayers, who start indulging in malpractices and also to those whose philosophy is money, money and more money but no parting with the same. Black money, thus, keeps on multiplying; this is why, in every subsequent estimate, it is found to be higher and still higher.
[d] The evils of tax evasion are manifold: firstly there is revenue leakage; secondly, the incidence of tax becomes inequitable inasmuch as the honest man pays taxes but the evader does not; and shortfalls in revenue lead to increase in the rates, aggravating the inequitable impact; thirdly, widespread and successful tax evasion leads to general cynicism regarding all laws, and thus has a disruptive effect on society.
[e] Amnesty schemes give a fillip to such money as a feeling starts prevailing that the government is unable to check generation of black money domestically and abroad by Indian taxpayers.
[f] Black money is not a fund but a flow. Hence, what needs to be checked is the flow. Merely tackling the fund will not be sufficient.
[g] Such schemes are unethical. Rewarding tax evaders, who have duped the exchequer and have enriched themselves at the cost of society, cannot be an ethical act. While mooting the VDIS, 1997, the then Finance Minister, P Chidambaram, observed:
[h] Moreover, the deterrence from the scheme
of prosecution has been removed. Mentioning
about one-time compliance and prosecution in the case of tax evasion, Wanchoo Committee observed as under:
“Need for vigorous prosecution policy
2.83 In the fight against tax evasion, monetary penalties are not enough. Many a calculating tax dodger finds it a profitable proposition to carry on evading taxes over the years, if the only risk to which he is exposed is a monetary penalty in the year in which he happens to be caught. The public in general also tends to lose faith and confidence in the tax administration once it knows that even when a tax evader is caught, the administration lets him get away lightly after paying only a monetary penalty – when money is no longer a major consideration with him if it serves his business interest. Unfortunately, in the present social milieu, such penalties carry no stigma either. In these circumstances, the provisions for imposition of penalty fail to instil adequate fear of the law in the minds of tax evaders. Prospect of landing in jail, on the other hand, is a far more dreaded consequence to operate in terrorem upon the erring taxpayers. Besides, a conviction in a court of law is attended with several legal and social disqualifications as well. In order, therefore, to make enforcement of tax laws really effective, we consider it necessary for the Dept. to evolve a vigorous prosecution policy and to pursue it unsparingly.”
[i] Hence, mere waiving of interest and penalty will not do. If the government wishes that its one-time compliance scheme should bring some revenue, it will have to waive prosecution also alongwith interest and penalty.
An Amnesty scheme (or open window scheme / one time compliance scheme, whatever the government may prefer to call it) needs to be reconsidered for scrapping.
VOL. 9, ISSUE 2 | May 2015