Tax amnesty schemes are morally vexatious, noxious and of course corrosive. There is no justification whatsoever for new amnesty schemes. Each past amnesty scheme had amounted to a giltedged incentive to keep tax dues black, or unaccounted, and pay it, if circumstance so forces, in the next amnesty scheme. Nor have these schemes yielded large revenues. A Public Interest Litigation was filed in the Supreme Court in 1997 arguing that schemes like Voluntary Disclosure of Income Scheme penalised honest tax payers and at the same time encouraged errant tax evaders. The government then had to give an undertaking to the Supreme Court that the VDIS was the last of its kind, and the government would not bring any such schemes in the future. Despite the Supreme Court ruling that such schemes cannot be announced every year, UPA's Finance Minister P. Chidambaram had in 2013 said categorically, "There is a Supreme Court judgment on VDIS which actually ties up our hands in announcing a scheme on the lines of VDIS.” Yet in the 2013 budget, he went ahead and announced an amnesty scheme for service tax offenders, termed Service Tax Voluntary Compliance Encouragement Scheme. The scheme was in effect till December 2013 and fetched the government around ₹ 6000 crore. Finance Minister Chidambaram had later said the government will not be able to announce any more amnesty schemes for the next 20 years, due to various factors, including curbs imposed by the Supreme Court.
VDIS 1997 was without doubt the most successful tax amnesty scheme in India realising taxes worth ₹ 9729 crore on gross declarations of ₹ 33,000 crore. It got a good response because it allowed evaders to 'dress up' their declarations. The scheme attracted over 4.75 lakh declarations of which 3.09 lakh pertained to jewellery and other movable chattels. It allowed 'declarants' to disclose their possession at back-dated values. Tax defaulters took advantage of this clause by grossly undervaluing their property. Jewellery and real estate were declared at 'decade-ago' prices, causing a sharp drop in their taxable incomes. In last October, when the most recent attempt at recovering black cash overseas stash amnesty scheme failed in a colossal heap garnering a paltry ₹ 3770 crore declared by 638 individuals and entities, regular tax payers were furious. A 90-day window which opened on July 1 with draconian penalty provisions was pretty much laughed away by black money hoarders. The Government was obviously stunned with the results given that it was tom tomming dramatic returns with half page advertisements in mass circulated dailies. As a policy measure, the overseas tax amnesty scheme was without doubt one of the BJP Government's biggest debacles.
Notwithstanding the stinging slap in their faces, the BJP Government has now decided to walk this path of perdition yet again. With a king new nomenclature, the Income Declaration Scheme 2016 wants to reprise last year's scheme, only this time it is meant for domestic tax hoarders. In complete contravention of the SC ruling on a domestic tax amnesty scheme, IDS 2016 goes live on June 1 for a four month period till September 30, 2016.
The Income Declaration Scheme, 2016 incorporated as Chapter IX of the Finance Act 2016 provides an opportunity to all persons who have not declared income correctly in earlier years to come forward and declare such undisclosed income(s).
Under the Scheme, such income as declared by the eligible persons, would be taxed at the rate of 30 percent plus a 'Krishi Kalyan Cess'of 25 percent on the taxes payable and a penalty at the rate of 25 percent of the taxes payable, thereby totalling to 45 percent of the income declared under the scheme.
While the scheme offers immunity under the IT Act, Wealth Tax Act and the Benami Transactions (Prohibition) Act 1988, it does not ring fence the declarant against other penal provisions of other laws and provisions of say the Central Excise and Customs Acts or the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015 as well as FEMA and PMLA. So why do Governments of different hues continue to walk this path fraught with risk? Why can't governments and policy mavens think of more inventive ways to unearth black money — both domestic and overseas? Brokerage Macquarie in a note in 2014 had said that globally, voluntary disclosure seemed to be the most popular mechanism with countries such as the US, UK, Australia and many others introducing VDS in some form or the other pointing out that the US and Italy netted € 3.6 billion and € 5.6 billion respectively between 2009 and 2011 through tax amnesty schemes. If that is the case and it is a world wide phenomenon, why doesn't it work in India? Why are Governments serial offenders? Bureaucratic meddling, unease over needless harassment and compliance issues make India unique in matters of tax terrorism. In the normal course, India's record of unleashing tax terror using retrograde, regressive and retrospective taxation policies is well known. When it comes to amnesty schemes, the door is constantly ajar in India, for no one including the declarant is aware of where the next missile is coming from? In this new amnesty scheme, barring three specific Acts and their provisions, it is all blue sky and a can of worms, sorry — various forms of coercion, persecution and intimidation — remain open.
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