The new scheme for tax cheats that is in force now shows the desperation of the Narendra Modi government to somehow show demonetisation has indeed worked well in trapping the black money in the system.

This was necessitated as close to Rs 13 lakh crore has already returned to the banking system through deposits out of the Rs 15.4 lakh crore demonetised on 8 November.

It is anybody’s guess how much of these deposits will turn out to be ‘black money’ at the end of this whole exercise. Much depends on the taxman. Under this scheme Pradhan Manrti Garib Kalyan Yojana, evaders get another opportunity to bring out their ill-gotten wealth by paying 50 percent tax and penalty and by parking a quarter of their illegal assets in a scheme for four years.

Representational image. CNN-News18Representational image. CNN-News18

Representational image. CNN-News18

This is the last such scheme, the government has said, for black money holders — something they had said even when the first IDS (income declaration scheme) scheme for domestic black money holders was launched a few months ago.

That time, the government warning was that post September, there will be big crackdown and no chance will be given for anyone to come clean again. But here we are again with yet another black money scheme .

This, in all likelihood, will give an idea to the tax cheats that the ‘last chance’ for black money holders will keep returning periodically. The latest amnesty-like scheme tells us one clear thing. This is born out of the government’s growing realisation that demonetisation may not be an effective tool on the black money hunt.

Hence, the government was forced to once again offer incentives to tax cheats to get some money out of the shelves. The taxman has, so far, not found much luck in unearthing the illegal cash from raids, which is evident from the numbers given by the CBDT chairman last week. The department has so far conducted searches and seizures in about 291 cases, carried out surveys in 295 cases, where it has seized over Rs 316 crore including Rs 80 crore in new notes in raids, besides jewelry of Rs 76 crore, totaling Rs 393 crore, the chairman said.

The department has also sent over 3,000 notices on the basis of deposits in bank accounts. One needs to see how much illegal money is unearthed post this exercise. The other side of this exercise is that the honest taxpayer will feel foolish with repeated amnesty schemes for tax cheats.

In fact, the last black money scheme was even better for the evaders. Those who declared black money under the scheme had the option to pay the 45 percent tax in three easy installments — 25 percent by 30 November, another 25 percent by 31 March 2017 and the balance amount by 30 September 2017. The 45 percent penalty black money holders need to pay include tax, surcharge and penalty.

If someone with unaccounted money didn’t use such easy an installment scheme then, he is either a fool or someone who knows to fool the taxmen for the rest of his life. The chances that this time the tax amnesty scheme, which is open until 31 March 2017, may not yield much since the evader, who skipped the attractive September scheme, will now have to pay 50 percent of tax/ penalty and lock quarter of his deposits for four years. Rather, he would look for alternative ways such as benami channels.

Including the first scheme for foreign black money holders, this is the third amnesty the Modi government has offered to tax cheats. There is an obvious danger in rolling out back to back amnesty schemes. In the BJP Parliamentary meet, PM Modi mentioned the 1971 K N Wanchoo Committee report to support his ongoing demonetisation move.

But, the same report and the Shankar Acharya Committee in 1985 had also pointed out the ill-effects of announcing black money voluntary declaration schemes unless there is a compelling reason to do so. “Resorting to such a measure during normal times and that too frequently, would only shake the confidence of the honest taxpayers in the capacity of the government to deal with the law breakers and would invite contempt for its enforcement machinery,” the Wanchoo panel had said in 1971.

Whether the scenario, under which Modi announced demonetisation and black money declaration scheme for tax cheats falls under the description of ‘normal times’ or not is a matter of debate. But, PM Modi will do well revisiting the Wanchoo report for clues on the consequences of back-to-back black money declaration schemes.

First Published On : Dec 20, 2016 16:11 IST

View the original here – 

Demonetisation: Why PM Modi shouldn’t have offered another scheme for tax cheats